COMPENSATION FOR NATIVE TITLE EXTINGUISHMENT

By Michael Hunt – Principal at Hunt & Humphry.

The Native Title Act 1993 (Cth) (NTA) commenced operation in 1994. Since then there have been more than 300 determinations that native title exists in various areas of Australia, including approximately 60 in Western Australia.

Under the NTA, a determination about native title gives rise to the ability to claim compensation for the effect on native title of any acts which extinguished or affected native title rights. The rationale is that if the NTA has allowed valid extinguishment of or adverse effect on any native title rights, then compensation on just terms should be paid to the holders of the native title rights which have been extinguished or affected.

But until 8 months ago, no claim for compensation had been successfully litigated. With the decision of the Federal Court in Griffiths v NT (generally called the “Timber Creek Case”)[1] we now have our first judicial decision on native title compensation. The case has been examined in detail in many articles, including by Hunt & Humphry associate lawyer Liz Wreck.[2] The purpose of this short article is to consider the practical implications of the decision for mineral and petroleum companies operating in Western Australia.

By way of preliminary: some words of caution. First, the decision has been appealed by both sides to the Full Federal Court (and, given its significance, will probably be appealed from that decision to the High Court). Secondly, the case did not concern any mineral or petroleum titles. Thirdly, the case did not involve any future acts[3] – which are the usual acts involving mineral or petroleum companies.

It should be noted that compensation is not payable under the NTA for future acts done pursuant to a registered indigenous land use agreement (ILUA).

Under the NTA, compensation for extinguishment of native title rights is payable by the State of Western Australia. But under the Mining Act 1978,[4] it is the grantee of the mining tenement which must pay the compensation.

In the Timber Creek Case the Northern Territory was held liable to pay $3,300,261 compensation to to the Ngaliwurru and Nungali Peoples for the extinguishment and impairment of their non-exclusive native title rights and interests. This was made up of:

  • $512,000 for the economic value of the extinguished rights. The principle applied was that exclusive native title has the same value as freehold land but non-exclusive native title should be valued at something less than freehold value. The discount should be determined by assessing the nature of the native title rights that have been extinguished or impaired. In this case, the judge decided the appropriate amount, after discount, was 80% of the freehold market value of the land.
  • $1,488,261 for interest on that sum. In this case, simple interest was applied based on past usage of communal funds. Compound interest could be payable if communal funds were generally invested.
  • $1,300,000 for non-economic/intangible losses. The court, in assessing an amount that is fair and reasonable, examined the relevant effects on the native title holders concerned which may include elements of ‘loss of amenities’ or ‘pain and suffering’ or reputational damage. Some commentators have referred to this as loss of cultural and spiritual attachment to the land. The court considered the following:
    • the communal ownership of the native title;
    • the loss or impairment of native title rights by the act in question;
    • the non-exclusive or exclusive nature of the rights;
    • impact on any particular sites of significance; and
    • any reduction in area over which the native title rights can be exercised.

The lessons for mineral or petroleum companies from the Timber Creek Case can be summarised as:

  1. Understand your exposure. Conduct a tenement audit to ascertain if your tenement is in an area where native title may have existed at the date of grant or renewal; and if so, what was the effect on native title of its grant or renewal.
  2. Assess the status of any native title claim or determination in the area. What does the claim or determination say about future compensation?
  3. Assess any existing agreement with a native title party. Does the compensation paid under it foreclose any claim for compensation under the NTA?
  4. Consider whether, if the State is required to pay compensation for the grant of your title as a “future act”, you must indemnify the State for that compensation. Section 125A of the Mining Act 1978 
provides that the person liable to pay compensation to native title holders in respect of the grant of a mining tenement is the applicant or the holder at the time the amount is to be paid or at the time the determination of compensation is made (as applicable). 
 Section 24A of the Petroleum and Geothermal Energy Resources Act 1967 contains similar provisions in relation to compensation payable by holders of petroleum authorisations.
  5. Was your company the original grantee or has it acquired the title since grant?
  6. How should liability be allocated between your company and the vendor original grantee? Does the acquisition agreement apportion liability?
  7. The potential for future native title compensation should be considered in any proposed title applications or acquisitions. If an acquisition, to which party should any future liability for native title compensation be attributed. It is not uncommon for a junior to purchase a mine from a major which has generated much wealth from it over many years, but which has now become uneconomic for the major, yet is still potentially profitable for the junior. Is it reasonable that the junior will become subject to sole liability for the future native title compensation?
  8. A purchaser must consider whether the potential commercial benefits of the transaction outweigh the risk of liability future native title compensation – or at least the purchaser must factor that risk into the purchase price.

Many of these issues remain conjecture because of the limited applicability of the Timber Creek principles to mineral and petroleum titles. Also it is in the nature of mineral and petroleum titles that they overlap other tenure – such as pastoral leases. So how is native title compensation to be allocated amongst such tenure? Will the different duration of the tenure be considered?

It is interesting to speculate upon the effect of the Timber Creek Case on the future expectations of native title parties in relation to potential compensation under the NTA. The writer’s experience is that the prospect of future NTA determined native title compensation has not been a major factor in negotiations for acquisitions of tenements and projects and in negotiations of ILUAs and future act agreements. Now that some dollar figures have been published, that may change.

The writer’s experience is also that mineral and petroleum companies are surprised with the amount awarded in the Timber Creek Case. The writer thinks that one consequence of the Timber Creek Case will be to encourage native title holders to lodge and progress their own compensation determination applications.  In relation to “future acts” (a major issue of ongoing interest to mineral and petroleum companies) it is likely that native title parties will regard this decision as strengthening their bargaining power with proponents. Also it is likely that the government response will be to attempt to pass on to title proponents the liability for native title compensation.

What may also change is expectations when negotiating heritage agreements[5] which traditionally in Western Australia have been negotiated separately from ILUAs and future act agreements. The award of such a significant sum for non-economic loss in the Timber Creek Case may well change expectations of native title claimants/holders when negotiating heritage agreements.

In the native title world, we live in interesting times.

[1] Griffiths v Northern Territory (no 3) [2016] FCA 900; named the Timber Creek case for the small township in which native title rights were extinguished.

[2] Click HERE for the article.

[3] “Future acts” are (relevantly) the grant after 1 January 1994 of a mineral or petroleum title that extinguished native title rights and interests or are wholly or partially inconsistent with their continued existence, enjoyment or exercise. The only future acts considered did not involve mining or petroleum titles and anyway were ruled invalid (leading to an award of damages for trespass).

[4] Mining Act 1978, section 125A.

[5] By “heritage agreement”, the writer means an agreement commonly used in WA to obtain consent to the NTA’s “expedited procedure” applying to the grant of exploration tenure (often called section 31 agreements”).

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