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24 Oct 2013

Putting a price on native title - does the first Federal Court decision pave the way?

by Prue Warner, Mark Geritz

It will not be long before a price has to be put on native title, and this price could end up being be a liability for project proponents.

De Rose v State of South Australia [2013] FCA 988 is the first decision to order the payment of compensation to native title holders for the extinguishment of native title interests. Although the actual amounts were decided by agreement, we expect that it won't be long before the Court is required to resolve the controversial topic of valuing native title rights, and proponents should be aware that they could be liable.

When is compensation payable for extinguishment of native title?

After a native title determination has been handed down over an area, the external boundaries of the determination area will contain some areas where native title is extinguished by certain past acts or intermediate period acts. In these circumstances, the native title holders are entitled to compensation because of this extinguishment of native title rights.

Native title holders are also entitled to compensation for the extinguishment or impairment of their native title rights that occurs because of the grant of certain future acts by the State or Commonwealth.

The De Rose decision

In 2005, the Federal Court determined that the De Rose Hill Nguraritja People held native title over certain parcels of the De Rose Hill pastoral lease. The compensation application (decided on 1 October 2013) was in relation to three areas that were excluded from the determination area because native title was extinguished. It was held that compensation was payable as the native title holders would have held native title over those areas if not for the extinguishment of native title. The areas were a highway, a car park and a freehold lot which had been surrendered or resumed from the De Rose Hill pastoral lease.

Unfortunately for those of us who were hoping that the decision would give some guidance as to the valuation principles applicable to the calculation of the loss or impairment of native title rights, the Court endorsed an agreement that had been entered into between the parties without much discussion as to the relevant principles. In fact, the parties themselves could not even agree whether a freehold calculation was an appropriate basis for determining compensation.

However, the case has reignited the debate as to how native title should be valued.

How might the extinguishment of native title be valued?

How native title rights will be valued remains a source of confusion with many differing views including equating the loss of native title rights to be similar to loss of the unimproved freehold value of the land or easement rights (with a discount factor to reflect any continued enjoyment of the native title rights).

The compensation provisions in the Native Title Act 1993 (Cth) (NTA) even indicate that compensation for the extinguishment of native title rights is to be capped at the amount that would be payable for the compulsory acquisition of the freehold. However, particularly in circumstances where it is necessary to ensure that the acquisition of native title rights occurs on just terms within the meaning of section 51(xxxi) of the Constitution, this cap is subject to the requirement that the compensation be on "just terms".

Just terms

Just terms is a guarantee of fairness, aimed at (as far as money can do it), putting the holder into a similar position as if their rights had not been extinguished. It is arguable that placing the native title holders in the same or a similar position as if their rights had not been acquired could go far beyond the freehold value attached to property.

Similar compensable interest test

The "similar compensable interest test" will also be relevant in circumstances where compensation is payable under another law for the act on the assumption that the native title holders instead held ordinary title to the area. 

For example, under the Mineral Resources Act 1989 (Qld) and Petroleum and Gas (Production and Safety) Act 2004 (Qld), project proponents must pay compensation to landowners for the impact of their activities (these provisions also have the goal of placing landowners in the same position as if the tenement had not been granted, as far as money can do that). If native title holders also held ordinary title, they too would be entitled to compensation.

Examples of the heads of loss that may also be applicable to native title holders include: deprivation of possession of the surface area, diminution of use, severance of any part of the land and "all loss or expense" that arises. How such concepts apply to native title will need to be considered in the future, as will concepts such as "special value" to native title holders, a term that has significance in the acquisition of ordinary title.

Personal injury analogies

Some have historically argued that the nature of native title, being an intimate personal connection to the land, should be treated more like a personal injury type of loss, although this is undeniably difficult to prove and quantify. Would this require some sort of statutory sliding scale (for example with points assigned between 1 and 100), similar to that contained in the Civil Liability Act 2003 (Qld)? The evidence brought to prove connection during the determination could form part of the basis for quantifying this loss.

Application of the "non-extinguishment principle"

It's worth separately remembering the application of the "non-extinguishment principle". Under the NTA this will apply to some past and intermediate period acts, and many future acts. Compensation for extinguishment will not be payable where this principle applies; rather, compensation for the intermittent deprivation of native title rights may be payable. This is because the native title rights are re-enlivened after the acts depriving native title rights have ceased.

Could compensation be payable by project proponents?

Project proponents could be liable for native title compensation in relation to future acts. This might occur if the State decided to pass it on for any future act they might be asked to grant (for example, the grant of new freehold). It could also occur to any future act to which the "similar compensable interest test" applies (the grant of mining and petroleum tenements being key examples of this).

Conclusion

As more native title determinations are handed down, the frequency of compensation applications will increase. This means that it will not be long before a price has to be put on native title, and this price could end up being be a liability for project proponents.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.