On 13 March 2019, the High Court handed down its decision in what is commonly known as the ‘Timber Creek’ case. Timber Creek is both a tributary of the Victoria River and a town in the Northern Territory.

In 2006, the Ngaliwurru and Nungali People (the Claim group), were Determined to hold both non-exclusive and exclusive native title rights in those areas.

In 2011, they commenced proceedings for compensation under the Native Title Act 1993 (NTA) for the effects on their native title rights of a number of compensable acts giving rise to a right to compensation attributable to the Northern Territory Government.

The compensable acts occurred between 1980 and 1996. They included grants of tenure and public works covering about 127 hectares. Some of the areas were within the area of the native title Determination and some were not. In relation to those that were not, the parties to the litigation agreed native title was held by the Claim group at some time and was extinguished by the relevant compensable acts.

It is necessary for a group claiming compensation under the NTA to show they did in fact hold native title rights over an area before relevant compensable acts extinguished or otherwise impaired them. That task is naturally made easier where there is a Federal Court determination of native title in the area.

The statutory regime applying to compensation under the NTA

The compensation provisions of the NTA need to be understood in the context of how the NTA deals with what are called past acts, intermediate period acts and previous exclusive possession acts. The NTA validates past acts which were things done prior to the commencement of the NTA but after the Commonwealth Racial Discrimination Act (RDA) 1975 that may have been rendered invalid because of the operation of the RDA, e.g. a grant of tenure by the State or Commonwealth over land done in ignorance of the existence of native title at the time and therefore discriminatory.

The NTA validates such past acts and intermediate period acts[1] to address the risk of their invalidity. In so doing, the NTA specifies what the consequences of the validation will be for the underlying native title, i.e. extinguishment or temporary suppression of the native title rights (by application of what is called the non-extinguishment principle), according to the category of the past act or intermediate period act concerned, (categories A, B, C or D).

Previous exclusive possession acts is a concept introduced into the NTA in 1998 to bring certainty to understanding what things undertaken by government will have extinguished native title. They can include past and intermediate period acts but only the categories of those acts that the NTA says fully extinguished native title.

In the Timber Creek case, most of the compensable acts were categories of past acts that extinguished native title. Some, however, (a small portion) were past acts to which the non-extinguishment principle applied. However, these were later followed by previous exclusive possession acts which completely extinguished native title.

While the Timber Creek case did not deal with future acts and compensation payable consequent upon the doing of a future act it should be remembered the NTA statutory future act regime allows for compensation to be claimed on the doing of a future act that involves extinguishment or, as is the case with most future act provisions of the NTA, involves impairment of native title rights by way of application of the non-extinguishment principle.

A right to claim compensation for the extinguishment of native title is determined under Division 5 of the NTA the main provisions of which are sections, 51, 51A and section 53.

Section 51(1) was referred to as the ‘core provision’, providing as it does for an entitlement to compensation on just terms for any loss, diminution, impairment or other effect of the (relevant) act on native title rights.

The High Court noted that section 51(1) recognises the existence of two aspects of native title rights, the physical aspects and the cultural or spiritual aspect. The use of the words ‘or other effect’, follow ‘loss diminution, impairment’ making it clear that compensation was payable for both.

Section 51A provides that the total compensation payable under the Division for an act that extinguishes all native title … must not exceed the amount that would be payable if the act were instead a compulsory acquisition of a freehold estate in the land or waters. As appears from the judgement, compensation comparable to “compulsory acquisition of a freehold estate” is not limited to market value.

Section 51A is subject to section 53 which provides that compensation, whether it be for past acts or intermediate period acts, previous exclusive possession acts or future acts must be on just terms as required by paragraph 51(XXXI) of the Commonwealth Constitution.

Principles determined to apply by the High Court

The Timber Creek case had been the subject of a Federal Court decision by a single Judge of the Federal Court in 2016 and then by the Full Federal Court in 2017.

In those Courts, compensation was considered to arise in connection with the economic loss suffered by native title holders as well as non-economic loss occasioned by extinguishment or impairment of their native title rights. The economic component was considered to relate to a portion of the freehold value of the area concerned, while the non-economic component was intended to reflect the loss of connection to the land native title holders suffer on extinguishment of their native title rights. In the earlier decisions, that non-economic component was equated with what is commonly understood in compulsory acquisition law to be ‘solatium’.

The High Court agreed that this bifurcated approach (involving a consideration of economic and non-economic loss) was appropriate to the assessment of compensation for the extinguishment of native title rights having regard to the proper statutory interpretation of the above provisions.

It noted that the NTA allows regard to be had to State and Territory compulsory acquisition law in determining compensation on just terms (s51(4)).

In that regard it was noted that such compulsory acquisition laws allow for the recovery of freehold value as well as compensation for severance, injurious affection, disturbance, special value, solatium or other non-economic loss.

Consistent with treating the extinguishment of native title with compulsory acquisition of freehold, therefore, compensation under the NTA provisions requires that both economic and non-economic aspects of the loss be addressed.

Compensation for non-economic loss reflects what the High Court preferred to call the cultural or spiritual aspect of the impact of extinguishment (the loss of connection with the land) rather than use the term ‘solatium’ to describe this loss as was done in the earlier decisions. Cultural loss more accurately described the non-economic loss component of the compensation.

In determining the economic loss component of the compensation (while noting there may be some artificiality in the approach), the compulsory acquisition law principle in the well-known case of Spencer v The Commonwealth (1907) 5 CLR 418 was applicable, namely determining freehold value involves the test of what a willing but not anxious purchaser would have been prepared to pay to a willing but not anxious vendor to secure the extinguishment (i.e. in a native title context) of those rights and interests.

The High Court confirmed that the value struck in that way (the equivalent of freehold market value) would equate to the value attributable to exclusive native title rights and interests. It would then be necessary to discount that value according to the nature of the native title rights and interests extinguished, including in particular, if they were non-exclusive.

In the Timber Creek case, the Claim groups native title rights and interests were categorised as usufructuary, ceremonial and non-exclusive, without power to prevent other persons entering or using the land or to confer permission on other persons to enter and use the land, without the right to grant coexisting rights and interests in the land, and without the right to exploit the land for commercial purposes.

The trial judge discounted the freehold economic value by 20%. The Full Federal Court discounted that value by 35%.

The High Court determined that the percentage reduction should be 50% to account for the nature of the Claim groups’ native title rights and interests.

In its consideration of that, the High Court made some useful observations on the nature of the exercise to be undertaken. First of all the alienability of a freehold estate is sometimes a significant consideration in the determination of freehold value. However, the inalienability of native title rights and interests was irrelevant to an assessment of freehold value of native title rights and interests.

That is because section 51A of the NTA equates the economic value of full exclusive native title to the economic value of unencumbered, freely alienable freehold title.

The High Court also noted that it is neither irrational nor surprising that the economic value of native title rights and interests in developed areas might in many cases prove to be greater than the economic value of comparable native title rights and interests in remote locations.

The High Court further speculated that it might be that any sense of loss of connection to country resulting from the extinguishment of native title rights in higher value developed areas is likely to prove less than the sense of loss or connection to country with respect to lower value, remote areas, because depending on the facts of the case, the sense of connection to country in higher value, developed areas may have declined as the result of encroaching development before the act of extinguishment or other compensable diminishment. If that was the case though the amount to be awarded for non-economic loss of native title with respect to higher value, developed land would be less.

More on non-economic loss

In relation to non-economic loss or cultural loss, the High Court noted the significant body of evidence heard by the trial judge about the Claim groups’ connection to their land and the impacts of the loss of that connection on extinguishment. In hearing that evidence, the trial judge was attempting to determine the nature of the essentially spiritual relationship which the Claim group had with their country and to translate the spiritual hurt from the effects of the compensable acts into compensation. The High Court noted the trial judge's concession that the process was complex and to some extent intuitive.

The task for the High Court, was to determine whether, having regard to all of that evidence the amount awarded for non-economic loss or cultural loss ($1.3 million), was so extremely high as to make it an entirely erroneous estimate of the damage. The Court decided that the amount awarded by the trial judge (upheld by the Full Court) was not excessive.

Simple interest – significant component of award

Simple interest was awarded on the economic loss component of the award ($320,250.00), in the amount of $910,100.00. The interest component ran from the date the compensable acts occurred. That also being the relevant date of the freehold market valuation. Clearly, interest is going to be a major component of many such awards for compensation under the NTA given the time elapsing between the dates of the compensable acts and the dates of judgement.

Looking forward

This is the first case that has comprehensively dealt with the interpretation of the NTA compensation provisions and the principles to be applied in determining compensation pursuant to those provisions. The principles the High Court determined should apply were not dramatically different to the earlier Federal Court decisions.

Given the NTA commenced in 1994 it is a little surprising that it has taken so long for these provisions and principles to be so comprehensively addressed by the High Court.

There are currently other compensation cases pending, but not many. No doubt others will follow. The Commonwealth, States and Territories will need to be making appropriate provision in their budgeting for this area of liability to traditional owners whose native title rights have been extinguished.

While not specially dealing with compensation for the impacts of future acts on native title rights, the Timber Creek case will be of considerable relevance in that context as well.