In the Timber Creek decision delivered on 13 March 2019, the High Court of Australia has determined, for the first time, the approach to be taken to resolving native title compensation claims.

Basis for native title compensation

Native title holders have a statutory right to compensation for some acts which have affected their native title. This right has been part of the Native Title Act 1993 (Cth) since its commencement in 1993. For a variety of reasons (including the complexities and delays associated with achieving recognition of native title), the application of the compensation regime has not been considered by the High Court until now.

It is important to note that there is no statutory right to compensation for acts which affected native title prior to 31 October 1975 (the commencement of the Racial Discrimination Act 1975 (Cth)). Also, compensation in respect of acts occurring since the commencement of the Native Title Act will generally have been addressed via agreements with the relevant native title parties.

Background to the Timber Creek decision

Timber Creek is a remote community in the Northern Territory, approximately 600km south of Darwin. The town was proclaimed in 1975.

The Timber Creek decision was the culmination of proceedings first decided by Justice Mansfield in 2016. That decision was the first ever judicial determination of a native title compensation claim.

The proceedings were brought by Alan Griffiths (now deceased) on behalf of the Ngaliwurru and Nungali Peoples, for the loss of native title rights over an area of 127 hectares in and around the town of Timber Creek (in the Northern Territory).

At first instance the court awarded $3.3 million for that loss. That amount was subsequently varied by the Full Federal Court, which reduced the award to $2.7 million.

What the High Court said

The High Court varied the award again, reducing it to just over $2.5 million. In broad terms, though, it accepted the approach that had been adopted for the calculation of the award by the Federal Court (both at first instance and on appeal).

The approach now endorsed by the High Court involves three components:

  1. An amount to compensate for the loss of the economic value of the native title rights. This requires a comparison between a freehold title (the maximum) and the particular native title rights that have been affected. This is an intuitive and evaluative exercise. In this case, the High Court awarded $320,250, being 50% of the freehold value of the land, for the loss of the non-exclusive native title rights held by the claim group.
  2. An amount of interest, to reflect the loss of the value of money over time. Importantly, the High Court confirmed that, ordinarily, this will only be an award of simple (not compound) interest – although compound interest may be available in some other cases. The interest awarded in this case was simple interest at the rate prescribed by a Federal Court practice note (which was 4% above the cash rate published by the Reserve Bank for the relevant period) and amounted to $910,100.
  3. An amount for the cultural and spiritual loss that was occasioned by the loss of the native title rights. Some of the compensable acts interfered with sites of spiritual significance – such as by the building of a causeway at a Dreaming site. The High Court recognised that some of the compensable acts affected not only the precise locations of the acts but, in a more general way, related areas. The effect of these acts was likened to punching holes in a single large painting which 'represented a single and coherent belief in relation to a far wider area of land'.

The High Court said that this component of the award was to be assessed by considering "what the Australian community" would regard as "appropriate, fair or just". In this case, the Court considered that the amount of $1.3 million awarded by the courts below was appropriate in the circumstances.

Some numbers to note

While the particular factors underpinning the quantum of the Timber Creek compensation award were unique to the circumstances of that case, it is worth noting the following:

  1. The freehold value of the affected land (at the time of the extinguishing acts) was approximately $5,000 per hectare.
  2. The compensation of $2,530,350 (for an area of 127 hectares) equated to a total award (including interest) of approximately $20,000 per hectare of affected land (though noting our comments below regarding the cultural loss component of the award).
  3. To date, native title has been determined over approximately 280 million hectares of land and waters nationally. While only some of those determined areas will have been affected by relevant acts attracting compensation (for example, it was approximately 6% of the claim group's determined native title land in Timber Creek), the total compensation bill will likely be very large. For illustrative purposes, applying the Timber Creek award of $20,000 per hectare to just 1% of Australia's total determined native title area, yields an overall compensation figure of $56 billion. At 5%, this increases to $280 billion.
  4. Even if the $1.3 million cultural loss component of the award is excluded from this illustration (on the basis that this valuation reflected the loss of particular cultural practices and may not translate to a simple $ per hectare calculation) these amounts are halved, but still remain significant.
  5. The total amount payable for native title compensation is uncertain and will take decades to be resolved, but this decision suggests that it will be very large sum.

What the decision means for project proponents

Apart from the significant social and economic implications, the decision will be of particular interest for project proponents for the following reasons:

  1. While the primary responsibility for native title compensation rests with the Commonwealth, State and Territory governments, this responsibility can be passed on to third parties in some circumstances. Given the expected magnitude of the compensation liability following the Timber Creek decision, it is likely that governments will actively explore opportunities to pass the cost through to private sector project proponents.
  2. In some states and territories – most clearly in New South Wales and Western Australia – some liability for native title compensation has been passed on to the holders of mining tenements. For example, s 125A of the Mining Act 1978 (WA) provides that if compensation to native title holders is payable for or in respect of the grant of a mining tenement, the holder of the tenement at the time the determination of compensation is made (or the last holder where the tenement has expired or been surrendered or forfeited) will be liable to pay.
  3. Apart from such statutory pass-throughs of liability, is it also possible that liability may be assumed by agreement. It would be wise for project proponents to review agreements reached (or under negotiation) with governments to see whether they have assumed such liabilities.
  4. It is likely that the Timber Creek decision will figure prominently in the negotiation of agreements with native title parties, since it sets the parameters of what could be achieved if the matter was litigated, instead of resolved by agreement.
  5. Project proponents will need to consider their financial reporting and disclosure obligations in relation to any potential native title compensation liabilities.

Likely developments

This will be a rapidly evolving area of law as the courts consider the application of the broad principles provided by the High Court in a range of more specific factual scenarios. Given how fact-specific and intuitive the analysis is, there will likely be some surprises.

It is also likely that significant further changes to the law – whether made by the courts or by parliaments – will be on the horizon. It is hoped that those further changes will provide greater clarity about how to determine a compensation award in practice, in order to encourage negotiated (rather than litigated) outcomes.