De Rose v South Australia - The first approved native title compensation determination

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15 November 2013

In October, the Federal Court handed down its judgment in De Rose v State of South Australia [2013] FCA 988, the first decision to order the payment of compensation for the extinguishment of native title rights and interests. Although the financial terms of the settlement were agreed by the parties in mediation, and were kept confidential by the Court, the decision is nonetheless significant in identifying a potential liability for both governments and third parties in compensating for extinguished native title.

Background: the Native Title Act and compensation for extinguishment

The Native Title Act 1993 (Cth) (NTA) creates a mechanism for compensating indigenous people for certain acts that have extinguished or impaired their native title rights and interests. This entitlement to compensation arises when the Commonwealth or State or Territory validates certain ‘acts’ that extinguish native title, described in the NTA as being past, intermediate period or future acts, or previous exclusive and non-exclusive possession acts. Examples of these types of acts include the making of legislation, the grant of a licence or permit, the creation of any interest in land or waters and the exercise of executive power.

The reason that the NTA creates this entitlement to compensation is because the validation of these acts would otherwise be invalid as a result of the operation of the Racial Discrimination Act 1975 (Cth) (RDA).  This is because the RDA protects native title holders against discriminatory extinguishment or impairment of native title. The compensation regime in the NTA addresses this issue.

Generally compensation must be made on ‘just terms’, taking into account any loss, diminution, impairment or other effect the act has had on native title rights and interests. Compensation is ordinarily payable by the government entity, Commonwealth, State or Territory to which the act is attributable. Compensation is payable only to the extent (if any) that the native title rights and interests were not already extinguished at common law.

The Judgement

In 2005 the Federal Court determined that that the De Rose Hill Nguraritja people held native title over certain parcels of the De Rose Hill pastoral lease, in the Western Desert region of northwest South Australia. Significantly however, the determination excluded certain areas of land where extinguishment of native title had occurred.

A compensation application was later filed by the Nguararitja in relation to three lots where native title had been extinguished, being a freehold lot, a public road (the Stuart Highway) and a car park. Under Court-ordered mediation, the parties came to a negotiated settlement to resolve all of the State’s compensation liabilities to the Nguararitja, but required a court order to give effect to the proposed settlement deed. Amongst other procedural requirements, the Court was required to determine whether the proposed compensation was on ‘just terms’ and did not exceed the amount that would be payable if the land had been freehold land that had been compulsorily acquired.

As this was the first occasion that the Court was required to determine native title compensation, there were no ‘directly relevant’ prior decisions to help guide the Court. Given this lack of the judicial guidance, the Court instead looked at the principles applied in consent determinations of native title; that is, where indigenous claimants and respondents had come to an agreement about whether native title exists in a particular area and require the court to sanction the agreement. In these native title consent determinations, the primary consideration for the Court is to determine whether there is agreement, and whether this agreement was freely entered into on an informed basis. The Court will not ‘embark on its own inquiry of the merits of the claim’, but rather has a cursory examination of the proposed agreement, and of the process that led to agreement.

The Court in De Rose imported these considerations used in native title consent determinations and applied them to the current facts. The Court took into consideration the fact that agreement had been reached between the parties, and that the parties had been informed by competent legal representatives, and ultimately endorsed the proposed settlement agreement.

Although the terms of the settlement deed were reproduced in full in the Court’s decision, the actual amount paid in compensation was redacted. The Court considered that this was necessary to prevent prejudice to the proper administration of justice, and to avoid tainting other negotiations.

What does this mean for developers and project proponents?

Has De Rose set a precedent for following compensation determinations?

Given that De Rose is a seminal decision, is it likely to be followed by a raft of compensation claims and determinations? The short answer is – it’s unlikely.  It is important to appreciate the broader context of compensation determinations and the framework of the NTA before proclaiming that the floodgates have opened.

First of all, the history of compensation determinations indicates that this decision is not likely to be followed by a series of successful compensation claims. In its 19 year history, 37 compensation applications have been filed under the NTA. The De Rose decision is the first successful compensation determination, with all others bar one having been withdrawn, discontinued or dismissed.

The second element to consider is that in any compensation determination, the claimants must overcome the threshold issue of proving they actually possessed native title rights and interests over the relevant land, subject to the extinguishing act. The test for determining the existence of native title under s 223 of the NTA is an onerous one, and is not easily satisfied.

Finally, compensation is only payable for extinguishing acts that occurred after 1975; the date of the introduction of the RDA. This is because prior to the enactment of the RDA, Commonwealth and State governments were free to make grants or do acts that extinguished native title, without requiring these acts to be ‘validated’ by the NTA. As such, it is only the ‘validation’ of acts after 1975 by the NTA that enlivens an entitlement to compensation. The majority of acts extinguishing native title are likely to have been committed prior to 1975, meaning that there is no compensation payable. There is no common law right to compensation for the extinguishment of native title rights and interests.

Are third parties liable to pay compensation?

In general, Commonwealth, State and Territory governments are liable for compensation for extinguishment, as they are liable for acts that occurred on or before 23 December 1996, the date of the High Court’s decision in Wik Peoples v Queensland (1996) 187 CLR 1.  

However, in some circumstances third parties, such as developers or project proponents, may be liable for compensation for ‘future acts’; that is, acts that occur after 23 December 1996. For example, a developer seeking a grant of an interest in Crown land for development, or a project proponent seeking to construct a facility for services to the public, may be liable to pay compensation for extinguishment.

How do I assess a potential liability for compensating extinguishment?

Unfortunately, the NTA provides limited guidance of how to value compensation for extinguishment, and the De Rose decision has not provided any further guidance.  Under the NTA, the valuation of compensation for extinguishment differs depending on the extinguishing act. In most cases, the legislation provides that the amount of compensation must be on ‘just terms’, and must not exceed the amount that would have been payable if the act that extinguished native title had been the compulsory acquisition of freehold estate (the ‘freehold cap’). However, this freehold cap is further subject to the constitutional guarantee under s 51(xxxi) that the acquisition of property by the Commonwealth must be on ‘just terms’. Consequently, the only real guidance in the NTA is that compensation must be on ‘just terms’.

The De Rose decision does not provide any further clarity in terms of valuation principles. The decision to keep the compensation amount confidential means that it is unclear how the parties valued the native title rights. The Court gave a vague description of the negotiation process, with the parties proposing detailed calculations and formulae to one another, with ‘vastly varying results’, until ultimately a mutually agreeable amount was reached. The Court also mentions that the State was not prepared to accept that the current freehold value of the extinguished area was necessarily relevant to the value of the native title rights and interests lost.

Conclusion

The De Rose decision indicates that governments and project proponents should appreciate that the extinguishment of native title, either by the court or otherwise ‘deemed’, does not mean necessarily preclude further liability. There are currently five active compensation applications, four of which are in Western Australia, and the outcome in these decisions in light of De Rose will be noteworthy.

However, the broader implications of De Rose are limited by its facts. Compensation in De Rose was reached by agreement between the parties, and all the Court was required to do was sanction the proposed settlement, and expounded certain considerations in doing so. The decision does not broaden the rights to compensation, but merely confirms that there is a statutory right to compensation.  

Unfortunately, until the Court makes a determination in favour of a claimant group in a contested compensation determination, we are no clearer in assessing compensation for native title rights and interests. Overall, it appears that whilst both the NTA and the parties in the De Rose decision contemplated the freehold value of the land in assessing compensation, the overriding guiding principle is that any compensation must be on “just terms”.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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James Whittaker

Partner. Sydney
+61 2 9210 6667

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