The High Courts decision in Wik has challenged many long held assumptions about the position of pastoral leases in Australia and has sparked cries by some groups for the conversion of all pastoral leases to freehold. This paper examines the impl ications of Wik in a three stage process. The first part of this paper will examine the economic factors which led to the dominance of the leasehold system in pastoral Australia. It will be suggested that the leasehold system came to dominate pasto ral tenure in Australia predominantly as a result of a number of government policy decisions and their consequences, both intended and unintended. The second part of this paper will focus on the background to the Wik decision and the legal history and implications of the case. In the third section , this paper will examine some of the issues arising from the Wik decision. The impact of Wik on pastoralists ability to diversify will be explored as will the issue of compensation for nati ve title holders and the conversion of leasehold title to freehold. Finally, it will be suggested that the genuine cause for concern in relation to the impact of Wik on investment is the potential creation of a perception of uncertainty.
The development of the pastoral leasehold system has its origins in the "pastoral invasion of the continent". (Weaver 1996 : 982 ) The approach to be undertaken in this section will be to identify the key legal and economic factors which lead to domina nce of pastoral leases in Australia.
The initial impetus to open up inland Australia in the early 19th century has been attributed to the opportunities for profit in the export of wool, especially through the use of cheap, and in many cases illegally obtained, land. (Weaver 19 96 : 982) The practice of squatting on crown land offered cheap pasturage and the opportunity for greater profits than if land had to be acquired through legitimate channels. Indeed, the cost advantages of squatting made nonsense of investment in freehol d title and in 1826 led to Edward Parry of the Australian Agricultural Company condemning the unlawful opportunism of the squatters as a threat to legitimate business investment. (Weaver 1996 : 987)
The government of the day initially attempted to curtail the inland push. After the failure of the initial attempts to confine settlement, a system of depasturing licenses was implemented. However these licenses were simply permission for squatters to "become temporary users of a vast open common". (Weaver 1996 : 984). This was unsustainable. Areas of land which were close to staging areas for squatting expeditions suffered environmental degradation. As the pastoral licenses did not grant exclusive po ssession to, the land along the well traveled routes to the inland suffered overuse and severe despoiling. This in many ways was a classic case of the now well recognised problem of the 'tragedy of the commons' (Posner 1992). Each individual pastoralist had an incentive to use the land without regard to the impact it had on other users and the utility of the land.
Furthermore the squatters incurred regular costs in terms of the time and inconvenience involved in defending their land from rival squatters. Squatters were forced to erect large numbers of shepherds huts, plough land near their borders and move disea sed sheep onto neighboring land - as this was the only means of protecting what was merely possessory title.( Weaver 1996 : 989-995 ).
These problems, caused by the non-exclusivity of the license based system, most likely provided the impetus for a push by the squatters for a more secure form of land title. In the mid nineteenth century "the squatters gained some security of tenure th rough the system of leasehold grants." (Bradbrook, MacCallum and Moore 1997 : 1-2 )
However it is important to recognise that the squatters also needed access to money. (Bradbrook et. al. 1997 : 1-2 ) In 1843 legislation was introduced which allowed for stock and crops to be used as security on loans. Squatters were thus able to gain much greater access to finance. The removal of the requirement for land as security over loans thus may have contributed to a greater acceptance of the leasehold system and removed some of the demand for freehold land holdings.
Another factor which may have served to further entrench the leasehold system in pastoral Australia was the failure of the various attempts at closer land settlement and creation of small farm holdings via the process of free selection.
Free selection allowed individuals to encroach on the lands of the squatters by taking up small areas of farming land from the government and paying it off in installments. This was, not surprisingly, met with great resistance by the squatters. Squatt ers manipulated the system in various ways. Common practices included arranging for 'dummy' buyers, agreeing to purchase lands and then failing to pay for such land, deception of free selectors as to the availability of land and a general lack of co-opera tion with the process of free selection. (Bradbrook et. al. 1997 : 6-9, Roberts 1969 : 309-311, Butt 1996 : 841)
All the colonies suffered these problems. In South Australia an attempt was made to sell land rather than simply grant it. The outcome however was massive land speculation to the financial detriment of the colony of South Australia. (Bradbrook et. al. 1997 : 6-4)
In New South Wales the resumption of squatting land for the use by small farmers might be regarded as equally unsuccessful. As highlighted by Roberts (Roberts 1969 : 309-312) a combination of drought and lower wool prices meant very few small farms sur vived and much of the resumed land fell in to ruin. Lower wool prices and higher rentals on the unresumed land meant squatters often overstocked and in 1890 , 1200 squatting runs where in the hands of financial institutions .The experience in Queensland w as similar, where drought, flood, depression and pastoral distress led to declines in settlement in the interior regions. (Roberts 1969 : 317-318).
The response of government in both cases was to encourage squatters to take up the lands again by way of favorable lease conditions. These included long term leases of up to 42 years, very low rental rates guaranteed for long terms, rents based on a pe rcentage of the value of the land and even rent based on the number of sheep carried. Some leases were conditional on certain improvements being made or on responsible land management but this did not impede the taking up of the land again. (Roberts 1969 : 311, 320, Butt 1996 : 840)
Leasehold may also have become the preferred system of land holding because it represents a relatively low cost means of accessing large tracts of land. (Campbell 1967 : 182) The success and survivability of the large pastoralists has been argued as representing a victory for efficiency over equity in Australian real property law as "small land holders were generally unable to compete with the large pastoralists." (Bradbrook et. al. 1997 : 1-16) Having a lower cost to access the land may also have been seen as advantageous by allowing for more finance to be available to develop the land and to stock it.
All these factors therefore contributed to the dominance of the leasehold system for pastoral production. During the 20th century this dominance has remained essentially unchallenged until the Wik decision in 1996.
Background
The Wik case first entered the judicial system on the 30th of June, 1993. The Wik Peoples (who were later joined in the action by the Thayorre Peoples) lodged a native title claim in the Federal Court for certain lands in northern Queens land. The claims were in relation to two pastoral leases which had been granted by the Queensland government. The first claim was for a pastoral leasehold which had been granted in 1975 and expires in 2004. The land was not being extensively used for past oral purposes since "It had never been permanently occupied or fenced. [and] In 1988 it was reported that it carried only 100 unbranded cattle." (ATSIC 1997) The second claim was for another pastoral lease which was never occupied as a pastoral lease but which became an Aboriginal Reserve in 1922.
At the Federal Court the applicants were unsuccessful and an appeal was lodged with the High Court. The main issue at stake in the High Court was whether or not pastoral leases conferred a right of exclusive possession to the pastoralist or whethe r it was possible that native title rights could coexist with pastoral leases. By a 4-3 majority the High Court held that:
"the grant of certain leases under the Land Act 1910 (Qld) and the Land Act 1962-74 (Qld) did not confer on the lessee exclusive possession of the leased areas, and did not necessarily extinguish any native title that may be held in respe ct of those areas" (Attorney-Generals Department 1997)
Implications for Pastoral Leaseholders
Much of the concern being expressed, particularly in the mass media, relates to the impact of the Wik decision on the rights of pastoral leaseholders. The rights of a pastoral leaseholder are determined "by reference to the terms of the lease and t he statute under which it was created" (Attorney-Generals Department 1997) Thus individual claims must be determined on a case by case basis. Where there is a conflict between the rights of a pastoral lessee and native title rights, the rights of the less ee will prevail to the extent of any inconsistency. (Toohey J in The Wik Peoples -v- Queensland )
The High Court does however provide some indication of what a lessees rights may be where the lease is for pastoral purposes. Writing in the lead judgement, Gummow J. suggests that this "would include the feeding of cattle or other livestock upon the l and but it may well be broader, and encompass activities pursued in the occupation of cattle or other livestock farming." (Gummow J. The Wik Peoples -v- Queensland) This may therefore act to restrict the capacity of pastoral lease holders to divers ify, especially where such diversification would be inconsistent with the rights of native title holders. This will be addressed further in the section of this paper dealing with the issues arising from the Wik decision.
The Implications of Wik for Government
The Wik decision has a number of implications for the government. All levels of government must now give consideration to the rights of native title holders when dealing with pastoral leases. According to the brief issued by the Attorney-Gen erals Department, in light of Wik, the Native Title Act (NTA) may
Clearly the Wik decision, especially as it relates to the NTA, raises serious issues for the government. Indeed, as will be discussed later, it is the compensation rights in particular which may have raised the stakes for the government in terms of finding a solution to the Wik 'problem'.
Implications for Mining
The two main issues arising from the Wik decision for miners are that "mining titles over pastoral lease land will probably need to follow the 'right to negotiate' under the NTA [and] … grant of a mining lease may not confer exclusive posses sion of the leased area." (Attorney-Generals Department 1997) . Native title may thus possibly also coexist with mining leases though it has been argued that this is less likely given the nature and intensity of mining operations (Attorney-Generals Depart ment 1997).
Diversification
As suggested earlier, one of the implications of the Wik decision for pastoral leaseholders is that it may act to restrict the capacity to diversify. This may cause problems where a pastoralist wishes to shift the focus of their land use, fo r example cultivating of the land with wheat or cotton. This would involve substantially altering the nature and use of the land and would also involve investment in infrastructure such as irrigation. Should a court find that such usage is outside the sco pe of the lease then it would be expected that the native title rights would prevail.
Does this have implications for efficient usage of the land? It is possible to argue that there are alternate points of view. Firstly, it may be argued that efficient usage of the land is impeded by such a restriction. In order to ensure that land is u sed in the most productive manner, farmers need the flexibility of being able to switch their production to the type of land usage which will allow them to maximise profits. For example, if the price of sheep or cattle falls, then it may become more profi table to use the land for the production of cereal crops or cotton. Wik, by restricting the ability to diversify, could lock lessees in to a sub-optimal land usage pattern.
This line of argument however, is not without its flaws. It may be open to ask if this genuinely is the way in which pastoralists and farmers react in response to changes in demand for their output and changes in their operating environment. Pastoralis ts may choose simply to alter the extent of their land usage or to alter their stocking rates so as to stay in the same industry. Pastoral production has survived and continued to be practiced on these leases since the days of squatters - despite the vaga ries of weather and agricultural prices.
This may suggest that pastoralists do not respond to change by diversifying and therefore arguments based on diversification are economically sound but do not necessarily reflect actual practices.
Compensation and the conversion of leasehold to freehold
As discussed in the section on diversification, Wik can act to restrict the activities of pastoralists. Granting of freehold title would give these farmers the right to exclusive possession and greater flexibility to adjust the usage of the land in response to changes in market conditions. However granting of freehold title which extinguishes native title requires the payment of compensation to native title holders. This raises two difficult issues.
Firstly, how does one value the rights of native title holders? Since native title does not confer exclusive possession and gives way to the rights of the lessee where there is a conflict between native title and legitimate pastoral activity, what shou ld be the determinant of the size of compensation? Given that native title rights are less than freehold then just compensation may not require the freehold value of the land to be paid to native title holders. But at the same time it is a difficult task to place a value on the intangible loss being suffered by native title holders ,such as loss of access to areas of spiritual significance.
An alternative approach to determining the compensation to be paid to native title holders may be to base the compensation on the rent which would be expected to be derived if the land was being used in the most efficient manner. This however has its o wn pitfalls. Where the land is incapable of commercially viable utilisation, except in large holdings, the implicit rent derived from a small native title holding may be negligible and possibly unacceptable to native title holders.
The second issue arising is who should be responsible for payment of the compensation, however it is determined. Legally the burden will fall on the government since it will be the government who will extinguish the native title if they convert the lea ses to freehold. The issue then becomes who pays for the compensation in practical terms. For example, it would be necessary to resolve whether lessees who seek to have their lease converted to freehold should pay nothing, pay only the size of the compens ation, or the estimated freehold value of the land.
Any sale or conversion to freehold at less than the market value of the land would represent a redistribution of wealth in favour of the pastoral interests, a redistribution which may in fact may favour wealthy leaseholders. As commented in the Sydney Morning Herald , the anti-Wik campaign "has been waged for the benefit of the Aussie battler. But many pastoralists who stand to benefit from the campaign are anything but battlers" (The Real Wik Land Grab 1997). Indeed the major beneficiari es of any subsidised granting of freehold title would include several of Australia's wealthiest individuals, politicians and agricultural corporations. (Jopson and Verrender 1997)
Indeed, the government response to the calls for the granting of freehold and the extinguishment of native title on pastoral leases is perhaps not surpising given the influence of some of those who stand to gain. This conforms to the suggestion that Au stralian governments land laws and policies have always been constrained by public reaction, the interests of the class of landholders and that the leasehold system therefore reflects a history of political opportunism. (Bradbrook et. al. 1997 : 6-9) That pastoral leaseholders would seize on the opportunity presented by Wik to convert their leases to freehold at a subsidised cost should thus not be surprising.
The conversion to freehold title of pastoral leases is therefore quite problematic in terms of both determining the value of native title property rights and secondly the determination of what price should be paid and who, in practical terms, will foot the bill.
The Role of Uncertainty
It is perhaps ironic to note that both the majority and the minority in Wik make references to some uncertainty being created by permitting native title to coexist with pastoral leases. Kirby J states that "It is true that this result introd uces an element of uncertainty into land title in Australia, other than fee simple" (Kirby J The Wik Peoples -v- Queensland ) whilst Brennan CJ, in dissent in Wik, is even more damming and suggests it not only creates confusion but "would al so produce situations of uncertainty, perhaps of conflict" (Brennan CJ The Wik Peoples -v- Queensland ). Given statements like this, and the facts that claims for native title over pastoral leases must be decided on a lease by lease basis, it is pe rhaps not surprising that concern has been raised of the impact of this uncertainty.
The suggestion has been made for example that "some mining companies have given warning that they are reluctant to make new investments, less they be affected by aboriginal land claims" (The Aboriginal Patterns that Haunt Australia 1997 : 27) However, as indicated earlier, the implications of Wik for mining companies is that they will be expected to comply with the right to negotiate provisions of the NTA in relation to mining on pastoral lease land. If they meet these provisions and are able to negotiate access then there appears no reason for new mining projects not to proceed. Whilst the negotiation process may involve incurring additional costs, these costs should not deter anything other than marginal projects. i.e. those projects where the additional cost imposed by negotiations will reduce the returns from the projects to below the acceptable level of returns.
But, whilst objectively Wik may not provide cause for deterring investment, one should not ignore the impact on the 'animal spirits' of business. Indeed, it may be important to reiterate the words of Keynes who suggested that
"In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends." (Keynes 1939 : 162)
Investment and business activity may therefore not only be shaped by the actual costs and legal ramifications of Wik, but also by the subjective perceptions of businesses to the decision. There is evidence for Australia which suggests that busin ess expectations and uncertainty about the future are important determinants of investment. (Bureau of Industry Economics 1990, INDECS 1995,EPAC 1995) Although these reports focus on uncertainty relating to the key macroeconomic indicators, it is importan t to recognise that because of the nature of the relationship between investment and uncertainty (EPAC 1995 : 33), any change in the operating environment of a business which creates uncertainty can delay investment by the firm.
For example, the real cost of Wik to mining operations may be in terms of the costs of negotiations. Native title holders post-Wik, may be more confident in the exercise of their native title rights and mining investment may temporarily be discouraged by the prospect of higher negotiation costs. However while this may represent the actual implication of Wik, perceptions of uncertainty surrounding the security and rights of miners may have an impact on the extent of mining explora tion undertaken.
Thus, even though in reality Wik may simply have added a negotiation cost which may or may not be financially significant, the actual harm to investment may be bought about by the impact on business expectations and the perceptions of uncertai nity being created by elemtns of the media. Government policy must therefore address this uncertainty either by acting to extinguish native title or, alternately, by engaging in an extensive campaign of education explaining the actual implications, restri ctions and burdens of Wik.
The Wik decision does provide a challenge for policy makers, although many of the problems may be attributed to the reactions and claims of certain interest groups rather than the actual judgment itself. The leasehold system has offered pastoral ists a number of advantages and has remained the dominant system of land title for pastoralists since the early days of the squatters. Wik, by legally acknowledging that native title can coexist with pastoral leases, has perhaps provided a catalyst for pastoralists to pursue the next step in their improvement of their tenure, from leasehold to freehold. Whilst the Wik decision does have ramifications for the ability of pastoralists to diversify and may be feeding the negative speculations of certain investors, the conversion of leasehold to freehold would be a costly exercise. More so, it may represent another chapter in Australian history where particular groups have seized on an opportunity for potential capital gain. The governments respo nse to Wik must recognise this fact and take it in to consideration when listening to the cries about the plight of pastoralists. In essence, there is no simple answer as to what government response to Wik should be.