FEDERAL COURT OF AUSTRALIA

Lee v Commonwealth of Australia [2014] FCAFC 174

THE COURT ORDERS THAT:

1.     Mr Lee and Mr Gropler be granted leave to appeal.

2.    The interlocutory application dated 21 August 2014 to read the further affidavits of Mr Gropler dated 12 August 2014 and Mr Lee made on 12 August 2014, be refused.

3.    The appeal be dismissed.

4.    The appellants pay the costs of the respondents upon the application for leave to appeal and the appeal, to be assessed, if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    This appeal concerns the summary dismissal by the primary judge of a proceeding commenced by Mr Daniel Thomas Lee and Mr Graeme Peter James Gropler, the appellants, in which they claimed that certain parts of the Water Act 2007 (Cth) are invalid for exceeding legislative authority under the Commonwealth Constitution, damages for the loss they alleged they had suffered from the impairment by acquisition and abridgment of their property rights, and other losses, and for injunctive relief to restrain further loss.

2    Mr Lee is involved in the operation of an irrigated horticultural farm in Victoria that draws water from the Murray River under water entitlements that arise under the law of Victoria.

3    Mr Gropler is involved in the operation of an irrigated horticultural farm in South Australia that also draws water from the Murray River. His entitlement to draw water arises under the law of South Australia.

4    The appellants commenced the proceeding in the High Court of Australia. It was then remitted to this Court under s 44 of the Judiciary Act 1903 (Cth). In the proceeding they sought the following specific remedies:

(1)    Declarations that the Water Act Pts 1, 2, 6, 8, 11 and 12 and Pts 9, 10, 10A and 11A are invalid.

(2)    A declaration that the provisions complained of are invalid by operation of s 100 and/or s 99 and/or s 92 of the Constitution, to the extent that the law impairs the constitutional guarantees provided for by those provisions, or breaches of those provisions.

(3)    An order restraining the Commonwealth of Australia and the Murray-Darling Basin Authority, the respondents, from abridging their rights to the reasonable use of the waters of the Murray River for irrigation and conservation.

(4)    An order restraining the respondents from taking or acquiring or otherwise taking any step to interfere in their water entitlements and allocations under the laws of their respective States.

(5)    A declaration that the Commonwealth has failed to comply with s 101 of the Constitution.

(6)    A declaration that there has been an acquisition of their property other than on just terms, where s 51(xxxi) of the Constitution is engaged as contemplated by s 254 of the Water Act.

(7)    Damages.

(8)    Alternatively, compensation.

(9)    Interest.

(10)    Costs.

5    The respondents filed an interlocutory application to have the proceeding summarily dismissed, seeking the following orders:

(1)    That the s 100 claim, the s 101 claim and part of the s 254 claim be stayed or dismissed for want of jurisdiction because they do not involve a “matter” for the purposes of Ch III of the Constitution, and of s 39B(1A)(b) or s 44(3) of the Judiciary Act.

(2)    That there be judgment for the respondents on all or some of the claims, under s 31A of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

(3)    That the amended statement of claim or parts of it be struck out under R 16.21 of the Federal Court Rules 2011 (Cth).

6    At the hearing of the interlocutory application Mr Lee and Mr Gropler moved to further amend their already amended statement of claim, by adding a new [47A] and [47B].

7    In support of their application, the respondents relied on five affidavits, being those of: Mr Russell Alexander James, Executive Director of the Policy and Planning Division of the Authority; Mr David John Papps, Commonwealth Environmental Water Holder; Ms Emily Jane Nance, solicitor for the respondents; Ms Mary Beatrice Harwood, First Assistant Secretary in the Water Efficiency Division of the Department of Sustainability, Environment, Water, Population and Communities; and Mr Anthony James Slatyer, First Assistant Secretary in the Water Reform Division of the Department.

8    In response, Mr Lee and Mr Gropler relied on affidavits made by each of them. They also gave oral evidence at the hearing at the invitation of the primary judge.

9    After considering the evidence and the argument put, the primary judge summarily dismissed Mr Lee and Mr Gropler’s proceeding pursuant to s 31A of the FCA Act, on the basis that it had no reasonable prospects of succeeding. See Lee v Commonwealth of Australia [2014] FCA 432; (2014) 220 FCR 300.

10    As to the ss 100 and 99 cases, the primary judge found that neither the Water Act as a whole, nor the challenged provisions taken separately, were laws with respect to trade and commerce with other countries or among the States and could not have been made under s 51(i) of the Constitution, and so, on the authority of Morgan v Commonwealth [1947] HCA 6; (1947) 74 CLR 421, ss 99 and 100 did not render the Water Act or the challenged provisions invalid.

11    As to the s 92 case, his Honour found that the proposed [47A] amendment to the statement of claim should be refused on the basis that the proposed claim directed against the Water Act based on the alleged contravention of s 92 could not succeed because the source of any infringement of s 92 lay in State laws; alternatively, that the part of the claim which relied on the New South Wales restriction could not succeed because the restriction was not picked up by the Water Act. His Honour also considered the amendment should be refused on discretionary grounds as it lacked clarity.

12    His Honour considered that the proposed [47B] amendment did not plead a s 92 claim which could succeed and so it would be futile to allow an amendment to that end. He also observed that generous opportunities had been given to the appellants to raise a sustainable case under s 92, if one was available, and they had not been able to define a case. Thus, there was no basis to allow them to further replead on the s 92 issue.

13    As to the Melbourne Corporation case, his Honour found the terms and operation of the challenged provisions of the Water Act did not impair the capacity of the Basin States to function as such.

14    As to the s 101 or Inter-State Commission case, his Honour found that the way in which the challenge to the establishment of the Authority was said to give rise to a claim under s 101 of the Constitution, seemed to be that the Authority was formed in place of the Inter-State Commission. If that were so, his Honour said there was no logical link asserted between the terms of s 101 and the complaint made.

15    As to the s 254 compensation case advanced by Mr Lee and Mr Gropler in relation to carryover water, his Honour found that there was no acquisition of property from the appellants and no measurable advantage conferred on the Commonwealth. Further, as to the allegation that water entitlements had become stranded and hence acquired, his Honour found, on their face, the pleadings made no sense as a claim under s 254 of the Water Act, as the acquisition about which complaint was made was said to have occurred as a result of actions of the Water Holder or allocations acquired from irrigators other than the appellants. His Honour further noted that when understood in the way counsel for the appellants had endeavoured to develop the case, the claim was that the way in which the legislative scheme operated had resulted in an increase in the delivery costs incurred by the remaining irrigators. He noted that Mr Lee and Mr Gropler gave evidence that the value of their properties had declined because irrigators in their localities had sold out their water allocations to the Commonwealth and their farms were no longer used as irrigation properties. His Honour said that, accepting for the purposes of argument that the operation of the Water Act has resulted in an increase in the costs of access to the irrigation delivery infrastructure and a decline in the value of Mr Lee and Mr Gropler’s farms, those economic consequences did not result in any acquisition of property by the Commonwealth.

16    As to an allegation made on behalf of Mr Lee in [71] of the amended statement of claim and on behalf of Mr Gropler in [75], his Honour found that insofar as the claim depended on the sale of environmental water by the Water Holder prior to the hearing, it was based on a factual error. His Honour noted that the complaint that Mr Lee and Mr Gropler did not achieve a better price in the market than when they sold to the Commonwealth, was not a sustainable claim under s 254.

17    His Honour also noted that, after the hearing of the respondents’ application, the respondents filed a second interlocutory application by which, in effect, they sought answers from the Court to a series of questions which reflected the matters argued on the original interlocutory application. His Honour considered that the more convenient course was to resolve the initial interlocutory application and dismiss the later one.

18    His Honour addressed the respondents’ contention that there were no relevant “matters” for determination by the Court as well as some fundamental misconceptions he considered were disclosed by the way Mr Lee and Mr Gropler put their case.

19    In light of his conclusion that there should be judgment for the respondents under s 31A of the FCA Act, his Honour considered it was unnecessary for him to determine the “matter” argument.

20    His Honour added, however, that several issues which may have been relevant to the issue of whether Mr Lee and Mr Gropler’s complaints constituted a matter for jurisdictional purposes concerned the operation of the sustainable diversion limits (SDLs) under the Basin Plan under the Water Act. His Honour said, at [229]-[232]:

The issue may best be understood by simplifying the situation and imagining that the irrigators in the Basin before the Basin SDL was set were entitled to 100 megalitres of water for irrigation purposes. Then the Basin SDL was set by the Basin Plan so that, again on the imaginary basis, 75 megalitres of water would be used for irrigation and 25 megalitres of water would be used for environmental purposes. Thus, the Basin SDL was set at 75 megalitres. Had nothing else happened it would be true that the irrigators together would have 25% less water available under their entitlements. But what intervened was the government policy which committed the Commonwealth to purchase the 25 megalitres of water entitlements from willing sellers in the market. The Commonwealth further committed to use the 25 megalitres of water for environmental purposes. The remaining irrigators who did not sell their entitlements retain the very same entitlements to 75 megalitres of water. The reduction in water entitlements for use in irrigation is achieved by devoting the water purchased by the Commonwealth to environmental uses.

Much of the imaginary 25 megalitres of water has already been purchased by the Commonwealth. Whilst government policy may change, the evidence in this case is that the policy means irrigators who retain their entitlements will suffer no loss of entitlement to water as a result of the fixing of the SDLs.

Further, the Commonwealth carries the risk arising from implementation of the SDLs. This was explained by Mr James in the evidence referred to in [77] of these reasons for judgment. The Basin Plan expressly provides that there shall be no non-compliance with an SDL where the Basin State has a reasonable excuse (cl 6.12(1)(b)). A reasonable excuse includes circumstances beyond the Basin State’s control, including where the Commonwealth has not achieved its own water recovery target for that area (cl 6.12(4)(b)). The inclusion of these provisions means that the SDLs will not be enforced against Mr Lee and Mr Gropler and hence reduce their water entitlements, should the Commonwealth not achieve its recovery target.

Of course these considerations do not address the other disadvantageous effects of the legislative scheme about which Mr Lee and Mr Gropler complain, such as the devaluation in the value of their properties and the loss of value of water entitlements as a result of unbundling. However, the assertion that the fixing of the SDLs would lead to a reduction in the water entitlements previously held by irrigators was a matter of emphasis in the submissions and there is no substantial basis for that concern.

21    In the event, the primary judge:

(1)    refused the application to amend the statement of claim by adding [47A] and [47B];

(2)    found there were no reasonable prospects of Mr Lee and Mr Gropler successfully prosecuting any of the claims made;

(3)    entered summary judgment for the respondents on their first interlocutory application, with costs; and

(4)    dismissed the respondents’ second interlocutory application.

22    Mr Lee and Mr Gropler now seek leave to appeal, and if granted, to appeal against the summary judgment findings, save in respect of the Melbourne Corporation case and the s 101 or Inter-State Commission case. The respondents consent to leave being granted. The Court considers leave should be granted having regard to the nature of the matters in issue and the consent of the respondents.

23    Mr Lee and Mr Gropler also sought leave to read two further affidavits, one made by Mr Gropler dated 12 August 2014 and the other made by Mr Lee dated 12 August 2014.

24    The Court assumes, on the hearing of the appeal, that some factual issues before the primary judge were capable of dispute. This can be assumed without the tendering of these further affidavits, this being the only purpose of their tender.

25    However, the essential facts that formed the basis of the dismissal of the proceeding under s 31A of the FCA Act, by reference to established legal principles, as determined by the primary judge and by us were not in dispute.

26    In these circumstances, leave to tender the two further affidavits is refused.

27    The appellants state some 22 grounds of appeal in their notice of appeal which, by their submissions, are organised along five primary lines of argument:

(1)    First, that the primary judge erred in his interpretation and application of s 31A of the FCA Act in granting summary judgment (grounds 1, 4, 5, 11, 12, 13 and 22).

(2)    Second, that the primary judge erred in concluding, at [122] to [124] of his reasons, that “viewed as a whole” the Water Act was not a law of trade and commerce; and, in the primary judge’s “fall back conclusion”, at [126], that its intrastate impact prevented it from being a law made under s 51(1), and that its “obvious Constitutional basis” was instead a law under s 51(xxix), as stated in [132] (grounds 2, 3, 6 to 11, 14, 17 and 19).

(3)    Third, that the primary judge was wrong in concluding that the s 99 claim could not succeed having regard to Morgan (ground 19).

(4)    Fourth, that the primary judge erred in concluding that the s 92 case had no reasonable prospects of success (ground 15).

(5)    Fifth, that the primary judge erred in rejecting the compensation case identified in the proposed amended statement of claim (grounds 4, 5 and 20).

28    The respondents, by a notice of contention, contend that the primary judge should also have dismissed the s 100 claim on the basis that it did not give rise to a “matter” under the Constitution.

29    Having regard to the way the issues were dealt with on the hearing of the appeal, the issues may conveniently be stated as follows:

(1)    Whether the primary judge erred in dismissing the ss 100 and 99 cases.

(2)    Whether the primary judge erred in dismissing the s 92 case.

(3)    Whether the primary judge erred in dismissing the compensation case.

(4)    Whether the primary judge erred by failing to find that the s 100 claim did not give rise to a “matter”.

Overview of the Water Act

30    In order to appreciate how the issues arise it is useful to provide a preliminary brief overview of the operation of the Water Act. In this regard, the following account is substantially drawn from that provided by the primary judge in his judgment, noting that the appellants did not question the accuracy of his Honour’s analysis.

31    The Murray-Darling Basin extends from central Queensland through New South Wales, the Australian Capital Territory, and Victoria to eastern South Australia (s 18A, Sch 1A of the Water Act). These States and the Australian Capital Territory are called the Basin States (s 4).

32    The regulation of access to water for irrigation, including in the Murray-Darling Basin, is affected by State legislation. The passing of the Water Act in 2007, however added further elements to the management of the water resources of the Murray-Darling Basin.

33    The central concept of the Water Act is the development of the Basin Plan (Pt 2 div 1).

34    The Basin Plan must identify water resource plan areas and they must align as far as possible with the areas provided under State legislation for the management of water resources (s 22(1) item 2).

35    The Basin Plan must establish the maximum long-term annual average quantities of water that can be taken on a sustainable basis from the Basin water resources as a whole and from the water resources of each of the water resource plan areas (s 22(1) item 6). These averages are called SDLs.

36    Where the actual use of water in a water resource plan area, or part thereof, is greater than the SDL for that area, the Basin Plan may provide for a temporary diversion in addition to the SDL (s 22(1) item 7). A temporary diversion provision is intended to minimise the impact during transition to the SDLs. But there are restrictions on the extent to which temporary diversion provisions may be made (s 24).

37    The Basin Plan must also provide for rules for the trading or transfer of tradeable water rights in relation to Basin water resources (s 22(1) item 12).

38    The Basin Plan must be prepared by the Authority and given to the Minister for adoption (s 41).

39    The relevant Basin State may prepare a proposed water resource plan for a water resource plan area within that State (s 63(1)). The water resource plan must incorporate and apply the SDL for the water resource plan area (s 22(1) item 11 and s 22(3)(b)), and provide for the sustainable use and management of the water resources within that diversion limit (s 22(3)(c)). The water resource plan must also specify the circumstances in which tradeable water rights in relation to the water resource plan area may be traded or transferred and the conditions applicable to such trades or transfers (s 22(3)(g)). If the Minister is satisfied that the water resource plan is consistent with the Basin Plan, the Minister must accredit the water resource plan (s 63(6)). If the Basin State does not provide a water resource plan, the Minister may request the Authority to prepare such a plan for a water resource plan area and then may adopt that water resource plan (ss 68 and 69). This process is known as “step-in” action. Division 3 of Pt 2 of the Act provides for an extensive process before step-in action is taken under ss 68 and 69. Step-in action cannot be taken unless the Minister is satisfied that there is no other feasible and effective alternative way of dealing with the circumstances (s 73(14)(d)(iv)).

40    The holders of water entitlements and bodies which manage water resources must not do any act inconsistent with the Basin Plan, and must not fail to do an act if the failure to do the act is inconsistent with the Basin Plan (s 35(1)). Where the obligation is specified in a water resource plan, then those obligations, and not the obligations under the Basin Plan, must be observed (s 39).

41    Part 8 of the Water Act provides for the enforcement of the obligations to comply with the Basin Plan or a water resource plan. Proceedings may be brought in a court for an injunction (s 140) or a declaration (s 144) or for the imposition of a civil penalty where a civil penalty is provided for (s 146). Further, the Authority may accept enforceable undertakings to comply with the Water Act (s 163), and these may be enforced by a court (s 164). The Authority may issue an enforcement notice for contravention of Pt 2 of the Water Act, or if it is satisfied that a person has engaged in, is engaging in, is likely to engage in conduct, or has omitted, is omitting or is likely to omit to perform an act which omission would be inconsistent with, prejudicial to, or would have an adverse effect on the Basin Plan or a water resource plan (s 165(1)(b) and (c)). Failure to comply with an enforcement notice attracts a civil penalty of 600 penalty units (s 166(1)). Further, the Authority has power to direct a person not to exercise water access rights, irrigation rights, or water delivery rights held by them (s 165(3)).

42    Part 6 of the Act establishes the Water Holder (s 104). This is a statutory office responsible for managing the water holdings of the Commonwealth (s 105(1)). Those holdings must be used for environmental purposes (s 105(3)). In support of that function the Water Holder is given power to buy and sell water, water access rights, water delivery rights, and irrigation rights (s 105(2)).

43    In practical terms, the requirement that Basin States prepare water resource plans for water resource plan areas was deferred. That result was achieved by transitional provisions in Pt 11 of the Water Act which dealt with two categories of pre-existing State water plans, designated as Transitional Water Resource Plans or Interim Water Resource Plans.

44    Transitional Water Resource Plans are water management plans which were in existence under State legislation before 25 January 2007 when the then Prime Minister announced the water policy initiatives which were later enacted in the Water Act. These plans are either listed in Sch 4 of the Act, or prescribed by regulations. Schedule 4 lists 27 plans in Queensland, South Australia, and New South Wales. The Schedule also specifies the date on which each plan ceases to have effect spanning from January 2013 to June 2017. In the case of Victoria, the Transitional Water Resource Plans are prescribed by the Water Amendment Regulation (No 1) 2012 (Cth) and the Water Amendment Regulation (No 2) 2012 (Cth) (together, the Water Regulations). The 129 Water Resource Management Plans made under Victorian legislation are prescribed as Transitional Water Resource Plans and each is stated to cease to have effect on 30 June 2019.

45    Interim Water Resource Plans are plans made under State water management laws on or after the policy announcement on 25 January 2007, but before 24 November 2012 when most of the Basin Plan commenced (s 242(1)). They have effect until 31 December 2014 or five years after they were made, whichever is later (s 242(3)).

46    Transitional and Interim Water Resource Plans are deemed to have been accredited by the Minister (s 243(1) and s 244(1)). The Transitional and Interim Water Resource Plans prevail over the provisions of the Basin Plan (s 245(2)), and the obligation to comply with the requirements of the Basin Plan under ss 34 and 35 is subject to any inconsistent provision of a Transitional or Interim Water Resource Plan.

47    On 22 November 2012 the Minister adopted the Basin Plan, and, save for Ch 12 which deals with water trading rules, the Basin Plan commenced operation on 24 November 2012. Chapter 12 is to commence operation on 1 July 2014.

48    The Basin Plan is a long document which addresses many issues required to be dealt with by the Water Act. For present purposes the most significant matter addressed by the Basin Plan is the fixing of SDLs (cl 6.04(2) and (3)). Schedule 2 sets out the SDLs by reference to each of 29 water resource plan areas for surface water. The total SDL for the Murray-Darling Basin amounts to 10,873 gigalitres per year (the Basin SDL).

49    Schedule 3 sets out the baseline diversion limit for each water resource plan area. This is the amount of water which was taken from the area under the existing arrangements, prior to the making and implementation of the Basin Plan. The total of the baseline diversion limits for the Murray-Darling Basin amounts to 13,623 gigalitres per year.

50    These calculations thus reveal a gap of 2,750 gigalitres per year between the Basin SDL and the baseline diversion limits for the whole of the Basin.

51    As to the date for the implementation of SDLs, two matters must be noted. The first is that the Basin Plan provides that SDLs do not take effect until 1 July 2019 (cl 6.04(1)). The other matter is that, in view of the long lead time for the implementation of SDLs, the temporary diversion provision was set at zero (cl 6.07). That is to say, there was no need to provide for a temporary usage above SDLs because SDLs were not to operate until 2019.

52    As noted above, declarations are sought that Pts 1, 2, 6, 8, 11 and 12 and Pts 9, 10, 10A and 11A are invalid.

Government policy in relation to the operation of the Water Act.

53    Not contested on the appeal is the primary judge’s account of evidence given on behalf of the respondents concerning the policy of the Australian Government relating to the management of water resources of the Murray-Darling Basin. It is also useful to set out the substance of the account of that evidence provided by the primary judge in order better to understand the practical operation of the Water Act and the nature of some argument put by the appellants.

54    Evidence concerning policy of the Australian Government relating to the management of water resources of the Murray-Darling Basin was given by Ms Harwood, who is the First Assistant Secretary in the Department. Ms Harwood was briefly cross-examined on her affidavit at the hearing.

55    Ms Harwood explained that in 2008, the then Minister for Climate Change and Water, Senator Wong, announced a plan called “Water for the Future” which was intended to address the decline in the environmental health of the Murray-Darling Basin. Two programs were introduced to respond to the decline, which, Ms Harwood deposed, was caused by overallocation of water entitlements and was exacerbated by the severe drought at the time. The programs were introduced in anticipation of the reduced levels of water use for irrigation which would be required under the Basin Plan.

56    First, the Sustainable Water Use and Infrastructure Program focused on water assessment and planning, and on investment in projects which would improve and modernise irrigation infrastructure. The program provided for Commonwealth funding to be used to undertake these projects. A central concept behind the program was to address the productivity issues of old and inefficient infrastructure, which leads to very significant water losses. Senator Wong said in a speech in April 2008 that the amount of irrigation water lost to leakage and evaporation each year is estimated to be about the same amount as is consumed in all of the major capital cities. The water savings generated by the improvements in infrastructure would be shared by the Commonwealth and the proponents of the particular project. The proponents’ share of the savings, Ms Harwood deposed, would generally be retained for consumptive use for the benefit of irrigators.

57    The second program was entitled Restoring the Balance in the Murray-Darling Basin. Through this program, the Commonwealth was to purchase water entitlements in the Murray-Darling Basin from owners who volunteered to sell their entitlements.

58    Then, in August 2010, the Prime Minister made a commitment to “bridge the gap” between the current diversion levels, being the baseline diversion limits, and the proposed level of diversion reflected in the Basin SDL. The Commonwealth would buy water entitlements and invest in infrastructure to ensure the transition to the Basin SDL. In this way, the Commonwealth’s intention was to reduce the current diversion level without reducing irrigators’ water entitlements. By late 2011 the Government decided to prioritise spending on infrastructure improvements to advance water recovery for the environment over purchasing water entitlements. This recognised the contribution made by infrastructure investment to long-term productivity of irrigation agriculture and the strengthening of local communities.

59    Evidence was given by Mr James, who is the Executive Director of the Policy and Planning Division of the Authority, about the progress of these government programs for the recovery of environmental water in the Murray-Darling Basin. Mr James was cross-examined on his affidavit. He explained that as at 30 June 2012 the Authority estimated that 1,547 gigalitres of water had been recovered towards the 2,750 gigalitre target and that amounted to 56 per cent of the recovery target. Mr James estimated that the recovery for the purposes of the SDL for the area in which Mr Lee farms as at 30 June 2012 was over 80 per cent, and for the area in which Mr Gropler farms was 54 per cent.

60    In his affidavit Mr James explained why it was unlikely that the introduction of the SDLs in 2019 would result in a reduction in the water available to the holders of water entitlements. He deposed as follows:

55.2.    [I]t is the Authority’s expectation that by the time SDLs commence in 2019, compliance with those SDLs will not require any reduction in the water that can be extracted by individual water rights holders who have maintained their access to water to use for consumptive purposes, because the required reduction targets will have been achieved through voluntary water purchases and from water savings associated with investments in more efficient infrastructure.

56.     … However even if, when SDLs commence in 2019 in the areas where the applicants reside, some further reduction in the water that can be diverted is necessary because the Commonwealth has not met its water recovery targets for the area, that still will not necessarily have any effect on the applicants’ existing water entitlements or on the volume and the reliability of their water allocations. This is because the Plan provides at s 6.12(4)(b) that where the Commonwealth, through its own failures, has not met its water recovery target there is no non-compliance with the SDL (that is the effect of ss 6.12(1) and (4)).

61    On this point Ms Harwood deposed that:

11.     The water acquired to deliver the “bridging the gap” commitment will be additional environmental water. The Department’s objective in administering the above programs is that sufficient water will be recovered or acquired so that the allocations of water to all persons who choose to retain their water entitlements in the Murray-Darling Basin will be unaffected by the implementation of the sustainable diversion limits provided for in the Basin Plan.

Did the primary judge err in dismissing the ss 100 and 99 cases?

62    Section 99 of the Constitution provides:

99 Commonwealth not to give preference

The Commonwealth shall not, by any law or regulation of trade, commerce, or revenue, give preference to one State or any part thereof over another State or any part thereof.

63    Section 100 provides:

100 Nor abridge right to use water

The Commonwealth shall not, by any law or regulation of trade or commerce, abridge the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigation.

64    Section 51(i) provides that the Commonwealth Parliament has legislative power with respect to "trade and commerce with other countries, and among the States".

65    The appellants, by [3] of their amended statement of claim, relevantly alleged the following constitutional issues with respect to ss 100 and 99:

(1)    whether Pts 1 and 2 or alternatively ss 11, 19(2), 22 (items 6, 7 and 8), 23 and 24 thereof and Pts 6 and 8 of the Water Act are laws which by their terms, operation or effect are invalid by reason of being contrary to s 100; and

(2)    whether Pts 2, 8, 11 and Sch 4 of the Water Act are laws which by their terms, operation or effect are invalid by reason of being contrary to s 99.

66    So far as the s 100 claim was concerned, at [25] and [26] of the amended statement of claim, the appellants alleged that the Water Act and in particular Pts 2 and 6 abridged their right to the reasonable use of the waters of the Murray River for irrigation. The particulars of that claim were that:

    The Water Act confers a right or power upon the Minister and the Authority to reduce consumptive use of the waters for irrigation to zero.

    The Water Act empowers the Minister and Authority to maintain zero extraction for irrigation of the Basin water resources or in particular water resource plan areas in the Basin States for an indeterminate period, for three months, 12 months or a period of years.

    The Water Act authorises the respondents to take from the appellants all waters of the River Murray for irrigation without any recognition or safeguards of their reasonable use of the river water for irrigation.

    The Water Act empowers the Minister and Authority to further reduce or abridge, once the Basin Plan is made, established SDLs to zero, and to reduce and establish SDLs of at least 20 per cent or more of reasonable use or State caps at which level a circumstance of permanent drought is imposed on the farms of the appellants.

    The operation of the Water Act is such that unless the reasonable use of water by the appellants is abridged, the water market will not be effective as a market.

    The Water Act further abridges and dilutes the appellants’ use rights by allocating all water in water resource plan areas to water entitlement holders, whether they are users or not, and whether their licences are overallocated as referred to in s 3(d)(i) of the Water Act, to the great harm and loss of the appellants.

    The Water Act empowers the Commonwealth as the Water Holder to trade and profit from water use such that the abridgment of the reasonable use of the waters of the River Murray by the appellants enhances the opportunity for profit by water trading, a stated aim of the Water Holder.

    By the creation of the tender process in water entitlements and allocation the Commonwealth has created a separate and artificial market which has devalued the appellants’ entitlements to the benefit of the Commonwealth.

    The practical operation of the Water Act is to sacrifice, by taking the appellants’ reasonable use of waters for conservation or irrigation, instead of resuming and acquiring overallocated entitlements referred to in s 3(d)(i) of the Water Act as provided for in the National Water Initiative, in order to save expense and/or founded upon fixed views about property rights in water and the requirement of the Basin water market.

67    The appellants further alleged, in [27] of the amended statement of claim, that in contravention of s 100 of the Constitution, the Water Act, in particular by Pts 2 and 6, has abridged their right to the reasonable use of the waters of the Murray River for conservation, and a number of similar particulars were provided.

68    By [28] of the amended statement of claim, the appellants further alleged the Water Act has empowered the respondents to limit all use by the States of Victoria, South Australia and New South Wales of the waters of the rivers, being the River Murray for irrigation or conservation or any other consumptive use, except for critical human needs under Pt 2A of the Water Act.

69    In each case the appellants pleaded that the Water Act or its relevant parts or provisions is a “law or regulation of trade or commerce”.

70    Similarly, the appellants by [33] of the amended statement of claim, alleged the Water Act is a “law or regulation of trade, commerce or revenue” within the meaning of s 99 and that Pts 2, 8 and 11 and Sch 4 in their terms, operation or effect discriminate in favour of certain parts of each of the Basin States of Queensland, Victoria, South Australia and New South Wales. The discrimination was said to arise by by quarantining these Basin States from burdens or impediments to water administration and trade otherwise imposed by the requirement that water entitlement holders and State administrators act consistently with the Basin Plan as required by all other parts or areas of all other Basin States under the Water Act, and excusing such parts of the States and persons from civil penalties, injunctions and other privations and actions, whereby a State or parts of one Basin State are preferred over another State or parts of other Basin States. Particulars were provided of the areas alleged to be preferred parts or areas.

71    In contending that the primary judge was in error in finding that the ss 100 and 99 cases had no reasonable prospects of success, the appellants submit that it is not necessary that the relevant parts or provisions of the Water Act that they impugn should be made or be capable of being made under s 51(i) of the Constitution if, by their terms, operation or effect they can be characterised as a law or regulation of trade and commerce.

72    Alternatively, the appellants contend that the relevant parts or provisions of the Water Act may be characterised as laws made under s 51(i) in respect of trade and commerce among the States, that is to say, interstate trade and commerce, and so ss 100 and 99 relevantly have application to them.

73    The appellants say the primary judge was in error to find otherwise and the Court should now find that the cases that they wished to put in relation to ss 100 and 99 had reasonable prospects of success having regard to the principles laid down in Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 and applied by the Full Court in State of Western Australia v Ward [2013] FCAFC 54.

74    Sections 99 and 100 are located in Ch IV of the Constitution, which contains provisions relating to finance and trade. On its face, this chapter deals with trade and commerce and revenue laws. It also includes ss 98, 101 and 102.

75    Section 98 provides:

98 Trade and commerce includes navigation and State railways

The power of the Parliament to make laws with respect to trade and commerce extends to navigation and shipping, and to railways the property of any State.

76    Section 101 provides:

101 Inter-State Commission

There shall be an Inter-State Commission, with such powers of adjudication and administration as the Parliament deems necessary for the execution and maintenance, within the Commonwealth, of the provisions of this Constitution relating to trade and commerce, and of all laws made thereunder.

77    Section 102 provides:

102 Parliament may forbid preferences by State

The Parliament may by any law with respect to trade or commerce forbid, as to railways, any preference or discrimination by any State, or by any authority constituted under a State, if such preference or discrimination is undue and unreasonable, or unjust to any State; due regard being had to the financial responsibilities incurred by any State in connexion with the construction and maintenance of its railways. But no preference or discrimination shall, within the meaning of this section, be taken to be undue and unreasonable, or unjust to any State, unless so adjudged by the Inter-State Commission.

78    Sections 99 and 100 of the Constitution have been the subject of relatively little consideration by the High Court of Australia since federation. The decision in Morgan dealt directly with s 99 and, in the course of doing so, the Court made certain observations about s 100.

79    Section 100 was also considered by members of the High Court in Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1 (Tasmanian Dam Case) and mentioned in Arnold v Minister Administering the Water Management Act 2000 [2010] HCA 3; (2010) 240 CLR 242 (Arnold HC). The New South Wales Court of Appeal also regarded Morgan in relation to s 100 in Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338; (2008) 73 NSWLR 196 (Arnold CA).

80    Morgan concerned orders made under wartime prices regulations, which fixed the price of meat, and wartime rationing regulations, which required the production of coupons for the purchase of meat. The regulations operated only in Victoria. They were challenged on the ground that s 99 prohibited the Commonwealth from making the laws.

81    The plurality (Latham CJ, Dixon, McTiernan and Williams JJ), at 452-3, held that the impugned orders were valid and that s 99 only prohibits the giving of preferences by laws which were, or could have been made, under s 51(i) of the Constitution. Their Honours relevantly stated:

(2)    The Constitution, in s. 51 (i), confers an express power upon the Commonwealth Parliament to make laws with respect to trade and commerce with other countries and among the States. This provision confers no power to legislate with respect to intra-State trade. It gives no power to make laws with respect to trade between different parts of the same State. Accordingly it was not necessary to provide against preferences to parts of a State over other parts of the same State, as no law could validly be made under s. 51 (i) with respect to trade between different parts of the same State. Section 99 prohibits preferences to one State or part of a State over another State or part thereof, but does not purport to deal with preferences within a single State. This circumstance shows a connection between s. 99 and s. 51 (i).

(3)    There is, however, no such circumstance to show a connection between s. 99 and the other legislative powers referred to in s. 51. There are many powers of the Commonwealth Parliament besides the defence power under which laws may be passed which affect trade and commerce, not only inter-State but also intra-State. Reference may be made to the powers to make laws with respect to (s. 51 (ii)) taxation - laws might be made under this power prohibiting commercial transactions, whether inter-State or intra-State, which were designed to evade taxation or which would interfere with the application of a system of taxation; s. 51 (iii)-bounties on the export of goods; s. 51 (v)- postal, telegraphic, telephonic, and other like services; s. 51 (ix) - quarantine (under this power there can be control of the movement of goods in the interests of health) ; s. 51 (xii) - currency, coinage, and legal tender; s. 51 (xv) - weights and measures ; s. 51 (xvi) - bills of exchange and promissory notes; s. 51 (xvii) - bankruptcy and insolvency; s. 51 (xviii) ­ copyrights, patents of inventions and designs, and trade marks. Under all these powers legislation may be enacted which may have an important effect in relation to trade and commerce. A law with respect to patents may prohibit the sale of patented articles without a licence from the person entitled to the patent. Such a law would be effective as a law with respect to patents in relation both to inter­State and intra-State sales. It would be quite irrelevant to consider the law in relation to the power contained in s. 51 (i) with respect to trade and commerce, because the law would obviously be a law with respect to patents, and so considered would (unless it infringed some applicable constitutional prohibition) be valid, being completely unaffected by the limitation of the trade and commerce power to foreign and inter-State trade.

82    The plurality, at 454, further observed that the impugned regulations and orders were with respect to defence and should not be held to be laws or regulations of trade and commerce within the meaning of the words used in s 99 of the Constitution, even though they produced effects in relation to trade and commerce, because they could not have been made by virtue of the legislative power conferred by s 51(i).

83    The plurality also took into account ss 98 to 102 and, at 454, said the view they had adopted was “reinforced” by consideration of the context and setting of s 99 in the Constitution. In this regard, their Honours stated:

It is included in Chapter IV. of the Constitution - Finance and Trade - and is one of a group of sections which deal with trade or commerce. The other associated sections consist of provisions all of which either define, or limit in some way, the exercise of the power of the Commonwealth Parliament in relation to trade and commerce - a power which, as already stated, is derived from s. 51 (i) of the Constitution and is therefore limited to inter-State and foreign trade and commerce. The following phrases are used in this group of sections: s. 98 – “laws with respect to trade and commerce”; s. 99 – “any law or regulation of trade, commerce, or revenue”; s. 100 –“any law or regulation of trade or commerce”; s. 101 – “provisions of this Constitution relating to trade and commerce and…all laws made thereunder” ; s. 102 –“any law with respect to trade or commerce.” These phrases vary in some particulars but they are all intended to refer to the same subject matter, namely laws which the Parliament can make under the power conferred upon it by s. 51 (i).

84    The plurality, at 455, said of s 100:

This provision raises a question as to the relation between it and the defence power which is not unlike that raised by s. 99. The prohibition contained in the section would, if it were construed as limiting the exercise of the defence power, limit it only in cases where the law of defence was also a law or regulation of trade or commerce and not in other cases. Such a limitation could find no justification in reason in that case and similar considerations apply in the case of s. 99.

85    Finally, the plurality concluded, at 455, that the whole group of sections, including s 99, should be read as applying only to laws which can be made under the power conferred upon the Commonwealth Parliament by s 51(i).

86    In the Tasmanian Dam Case, the Hydro-Electric Commission contended (amongst other things) that the Commonwealth regulations prohibiting it from building a dam on a Tasmanian river were invalid as a result of the operation of s 100. The Commission contended that what was said in Morgan about ss 99 and 100 could be distinguished. The argument put on behalf of the Commission – which is largely put by counsel for the appellants in argument before us – is recorded at (1983) 158 CLR 1 at 35, as follows:

The case should be distinguished for four reasons: 1. It concerned the defence power and not one of the trading law powers in s. 51. 2. The Court was strongly influenced by the possible inhibition of the Commonwealth’s power to provide for the defence of the country if s. 99 were construed to qualify par. (vi). 3. A reciprocal relationship was found between ss. 51(i) and 99 which s. 100 does not provide. 4. Paragraph (xx) was in abeyance after the Huddart, Parker Case. The received wisdom was that it was of limited effect and it did not occur to the judges that it might support laws bearing upon similar areas of activity to par. (i). On the positive side, s. 100 reveals a strong desire by the founding fathers to preserve the reasonable use of rivers for the States and their residents for stated purposes. It would be anomalous if the protection were available against the exercise of the trade and commerce power if it were not available against the exercise of another power depending upon trading considerations to deny the use altogether. All persons who derive rights through the exercise of a State’s legislative and executive powers are within the field of s. 100.

[Footnotes omitted.]

87    In the Tasmanian Dam Case, Mason, Murphy and Brennan JJ each applied Morgan in separate reasons for decision. Deane J also referred to Morgan but did not find it necessary to determine its correctness. Gibbs CJ, Wilson and Dawson JJ did not consider Morgan in light of their views on the validity of the impugned provisions. Whether the majority in the Tasmanian Dam Case is identified as involving three or four members of the High Court, it is clear that at least three members considered that the Morgan approach to s 99 also underlay s 100, and should be applied.

88    Mason J, at 153, expressly addressed the question whether the Commonwealth legislation infringed s 100. He said the prohibitions in ss 99 and 100 were plainly directed to the Commonwealth, not to the States. His Honour considered it unnecessary to decide whether s 100 guarantees to riparian States and their residents access to the use of the waters for the purposes mentioned, or whether it merely imposes a restriction on the power of the Commonwealth when legislating under ss 51(i) and 98. His Honour pointed out, however, that s 100 does impose a restriction on the exercise of Commonwealth legislative power which prevents it by a law or regulation of the kind described from abridging the rights of a State and its residents.

89    His Honour also said that the words “of trade or commerce” relate back to “law” as well as “regulation”. He considered this view was supported by similar expressions in ss 98, 99, 101 and 102, which make it plain that the group of sections is dealing with laws with respect to trade and commerce. In that context, his Honour said that the concept of laws with respect to trade and commerce signifies laws made, or perhaps capable of being made, under ss 51(i) and 98, for that is the relevant power conferred on the Parliament to make laws with respect to trade and commerce. He said the prohibitions are naturally directed to laws which may be made in the exercise of that power, with the addition in the case of s 99 of revenue laws, because the exercise of the taxation power might otherwise result in the giving of a preference to a State or to a part of a State. Mason J considered s 98 to be of special significance for three reasons, the third being that it suggested the primary purpose of s 100 was to safeguard the rights of a State and its residents to the use of waters in rivers used for interstate trade and commerce, including navigation and shipping, namely, the Murray River.

90    Mason J, at 154, considered that what he had said accorded with what was decided in Morgan. He added:

At first glance it may seem somewhat artificial to confine the restriction on legislative power as it was made, or capable of being made, in exercise of one power in a somewhat similar effect in relation to the use of waters of rivers by a State and its residents for conservation or irrigation might be achieved by the Commonwealth in the exercise of other legislative powers. Why, one might ask, would the framers of the Constitution confine the pursuit of the objective – the protection of the State and its residents in relation to the use of the waters – to some Commonwealth laws but not others?

91    His Honour said the answer to this question probably lay in the importance of the Murray River to New South Wales, Victoria and South Australia and the residents of those States and the apprehensions entertained by them as to the impact of the Commonwealth’s legislative powers under ss 51(i) and 98.

92    His Honour then added, at 154-155, that in any event the legal answer to the question is that one must give preponderant weight to the significance of the expression “law or regulation of trade and commerce” used in ss 99 and 100 which confines the prohibition to laws made, or capable of being made, under ss 51(i) and 98.

93    In Arnold CA, the appellants had commenced proceedings in the Land and Environment Court in New South Wales challenging the validity of a legislative scheme whereby farmers who held groundwater extraction entitlements under the Water Act 1912 (NSW) which, as and from 1 November 2006, under the Water Management Act 2000 (NSW) were replaced by aquifer access licences and supplementary water licences. The 1912 Act may be referred to as the old legislation and the 2000 Act as the new legislation.

94    The appellants contended that a water sharing plan made in 2006 under this legislative scheme and the legislative scheme itself were invalid. Relief was also sought that the National Water Commission Act 2004 (Cth) and the National Resources Management (Financial Assistance) Act 1992 (Cth) were also unconstitutional.

95    The alleged constitutional invalidity of the Commonwealth legislation was based upon s 51(xxxi) concerning the acquisition of the property on just terms by the Commonwealth, and on s 100.

96    The appellants contended that the invalidity of the Commonwealth conduct alleged was an essential element of its challenge to the decision of the State Minister to make the 2006 Water Sharing Plan under the new legislation.

97    The Court of Appeal, contrary to the conclusion reached by the primary judge in the Land and Environment Court, considered that the Court had jurisdiction to deal with the case before it. See Spigelman CJ (with whom Allsop P and Handley AJA agreed), at [86].

98    As to the s 100 point, the Chief Justice, at [89], explained that the focus of attention in the proceeding, for the proposition that the appellants had no prospect of success, was upon the words “by any law or regulation of trade or commerce”. His Honour there said that this was a matter that had been “authoritatively determined by the High Court in Morgan…”.

99    His Honour noted, at [90], that the appellants did not contend that the laws in question in the case before the Court were capable of answering that description.

100    His Honour further noted, at [91], as we have above, that in the Tasmanian Dam Case, Mason, Murphy and Brennan JJ accepted the authority of Morgan.

101    As to the proposition that the appellants relied on the fact that there was no majority in favour of affirming Morgan, his Honour said, at [92], that the Court of Appeal was bound by Morgan and the propositions based on s 100 which the appellants contended could not be accepted.

102    In Arnold HC, the High Court declined an invitation to re-open Morgan, which the appellants had submitted should be overruled on the basis that the words “law or regulation of trade or commerce” in s 100 were not confined to laws made under s 51(i). All members of the Court, with the exception of Heydon J, considered that the replacement of bore licences issued under the old legislation, with aquifer access licenses issued under the new legislation, was not an acquisition of property within the meaning of s 51(xxxi) of the Constitution. Similarly, the same members of the Court considered that the rights of the holders of bore licences under the old legislation were not to “the waters of rivers” within the meaning of s 100, which expression spoke only to surface water of a stream flowing in a defined channel.

103    In relation to the invitation to overrule Morgan, French CJ, at [23], noted that the case did not require its correctness to be re-examined, although the artificiality of its consequences, to which Mason J adverted in the Tasmanian Dam Case, remained. The Chief Justice, at [23], also noted that, in the Tasmanian Dam Case, three of the Justices endorsed the limitations in ss 99 and 100 to laws made under s 51(i). He also noted that no reference was made in Morgan or in the Tasmanian Dam Case to the drafting history relating to ss 99 and 100. The Chief Justice said that was not surprising as it was not until Cole v Whitfield (1988) 165 CLR 360 that the High Court accepted that such references could be made to ascertain the contemporary meaning of language used in a provision of the Constitution.

104    Gummow and Crennan JJ similarly did not find it necessary to re-open Morgan. They also noted other issues of construction of s 100 appeared in the course of argument, one being whether the term “residents therein” is confined to individuals and thus, could not include the corporate appellants. Another was whether as between riparian States and their residents, s 100 guarantees access to the use of the waters for the purposes mentioned, or did no more than impose a restriction on the exercise of the power, as noted by Mason J in the Tasmanian Dam Case.

105    Hayne, Kiefel and Bell JJ, at [76], considered that because the waters at issue in the matter were not “the waters of rivers” the further questions argued about the operation of s 100 did not need to be examined further and it was not necessary to decide whether to re-open Morgan.

106    At [75], their Honours suggested that an important purpose (perhaps the purpose) behind the inclusion of s 100 in the Constitution was to mark a particular limit upon the power of the Federal Parliament to regulate navigation.

107    It may reasonably be said, therefore, as the primary judge found, that the approach taken by Morgan to the proper application of s 99 is binding on this Court. If what was said in Morgan, and indeed by Mason J in the Tasmanian Dam Case about the rationale for the decision, is to be departed from then, in our view, this should result from a considered re-opening of Morgan by the High Court, not by this Court.

108    In the circumstances, his Honour cannot be said to have erred in deciding that, on the s 99 case, the respondents had no reasonable prospects of success. He properly considered the principles set out in Spencer v Commonwealth in so deciding. No error is shown.

109    Similarly, in relation to the s 100 case, given the dicta in Morgan and subsequent decisions, referred to above, the appropriate construction of the expression “law or regulation of trade or commerce” for the purpose of s 100, must currently be considered the same as “any law or regulation of trade, commerce …” for the purposes of s 99.

110    Consequently, we do not consider it can be said the primary judge erred in concluding that the s 100 case argued by the appellants, on the basis of Morgan, had no reasonable prospects of success. No error is shown. If a different approach to the construction of s 100 is to be taken, it must be as a result of a considered re-opening of Morgan by the High Court, not by this Court.

111    In those circumstances, the appellants press their alternative argument that the relevant parts of the Water Act that they impugn, can be characterised as a law relating to trade and commerce for the purposes of s 51(i), and so for the purposes of ss 99 and 100.

112    While the appellants appeared to rely on the entirety of the Water Act is pressing this contention, it became clear in the course of argument that the contention focussed on particular parts and provisions of the Water Act only. In particular, they posited that the Basin Plan and SDL provisions should be characterised as falling within the trade and commerce power.

113    The pinnacle of the appellants’ counsels’ argument was, in essence, that water travelling down the river system has an interstate dimension and should be regarded as an interstate commodity which is regulated by the Water Act.

114    The primary judge, in reasoning analogous to that employed by Deane J in the Tasmanian Dam Case, found that the provisions of the Water Act in issue did not relate to trade and commerce, let alone interstate trade and commerce.

115    The appellants contest this characterisation. First, they posit that the Water Act establishes and regulates a Basin water market. They say the Basin Plan is the machinery by which this occurs. They point to the requirement in s 20(e) of the Water Act that the Basin Plan must establish an efficient water trading regime across the Basin. In particular they note that by s 22, item 12, the Plan must set rules for the transfer and trading of transferable water rights and that the rules must contribute to achieving the Basin water market. They say the Water Act then provides the detail of how the rules may regulate the market (as in s 26).

116    The appellants contend that the Water Act thereby creates a water market which regulates a commodity which flows between different States and which regulates the trade of that commodity between persons in different States. Contrary to a submission made by the respondents, the appellants say there is nothing which is either vague or unspecified about the operation of the Water Act upon interstate trade and commerce in this regard. They contend that the operation of the Water Act is directed against trade and commerce and, more specifically, upon interstate trade and commerce.

117    The appellants develop their submission by saying that the trade of water as a commodity within each of the States has to be similarly regulated in order to achieve the efficient regulation of the interstate trade in that commodity, which the Water Act requires. Thus, the intrastate operation is said to be an incidental necessity to the exercise of the power under s 51(i).

118    The appellants emphasise that it is the operation and effect of the relevant provisions of the water market created by the Water Act that must be focussed on in determining the true nature and character of the impugned provisions. They contend that when that is done appropriately, and at least arguably for the purposes of a summary dismissal application, it can be seen that, while many of the provisions of the Water Act are, as the primary judge found, designed to protect the environment, they are also about interstate trade or commerce.

119    Counsel for the appellants emphasises:

    Pt 2.1 of the Water Act, which provides for the imposition of what he calls “water cuts” across the Basin and the establishment of a water market by a Basin Plan, especially by ss 19 to 27, and for prohibitions upon the State authorities and his clients in taking water for conservation and irrigation, otherwise than by the Plan.

    Pt 2.2, starting at s 53, which deals with the Water Resource Plan areas. For example, in New South Wales the lower Murray-Darling water sharing plan became, as from 2 July 2014, part of the Commonwealth Plan under Pt 2.2. Before that it was a Transitional Water Resource Plan.

    Div 3, starting with s 72, which creates procedures for step-in, that is to say, if a State does not amend its plans and provide them to the Commonwealth for adoption, then the Commonwealth has the power to step-in.

    Pt 2.4, starting at s 74 and the provision for risk assessment in the event of overallocation of water which, in effect, provides for the redistribution of overallocation measures.

    Pt 4, which establishes water market rules and prohibitions, starting with s 91.

    Pt 6, starting at s 104, which establishes the Water Holder.

    Pt 7 (although not challenged) deals with water information.

    Pt 8, which deals with enforcement, noting various modes of enforcement including civil penalty provisions and injunctive powers.

    Pt 11, which deals with transitional matters, particularly Div 1 which deals with traditional water resources plans and interim water resource plans, and Div 2, which deals with the powers of the Water Holder subject to certain restrictions in ss 248 and 249.

120    The appellants emphasise the SDLs in pressing their case. As became quite clear in the course of argument, the case put on behalf of the appellants is essentially that, because of the Basin Plan and the calculation of SDLs, there is potentially less water available from the Murray River for irrigators, and so, for the purposes of the s 100 case, the appellants are no longer able to make reasonable use of the water of the river.

121    In pressing that case, counsel for the appellants relied on a number of propositions:

(1)    The appellants are engaged in commercial irrigation using surface water resources, as defined in the Water Act.

(2)    That commercial irrigation is an activity in interstate trade and commerce.

(3)    The Water Act, in subjecting an indispensable step in the right to the water use of the appellants to an arbitrary power, conferred a right upon the executive to cut or abolish their rights of commercial irrigation and conservation down to what is described in Pt 2A of the Water Act as the level of predictable human needs.

(4)    The law providing for such “cuts” is in operation a law of trade or commerce or a law capable of being made under s 51(i).

(5)    The provisions relating to “cuts” are not severable from other provisions in Pts 2, 8 and 11 of the Water Act.

(6)    Thus, the law in Pts 2.1, 2.2 and 2.3 and the enforcement and transitional provisions in Pts 8 and 11 is a “law or regulation of trade and commerce” within the meaning of ss 99 and 100.

122    There are a number of stumbling blocks, recognised by the primary judge, which, in our view, make the propositions, pressed as a whole, untenable. In particular, the proposition, or assertion, that commercial irrigation is an activity in interstate trade and commerce, is put at a very high level of generality. It very much was put on the basis that water flowing down the river, which is diverted into commercial horticultural farms, provided the interstate character of the law. The argument, put in this way, fails to appropriately engage with the machinery provisions of the Water Act and what they say and do.

123    The second proposition put, again at a high level of generality, was that because the Water Act had the effect, or potential effect, of reducing the quantity of water in the River Murray for irrigation or conservation purposes, it therefore “cut” the appellants’ rights of commercial irrigation and conservation, so that the Water Act and its relevant parts was in substance or effect a law about trade and commerce among the States. In so stating, the submission fails to explain how the law thereby becomes one of trade and commerce among the States.

124    As the primary judge found, at [114], the central purpose of the Basin Plan is to establish the Basin SDL and the SDLs for water resource plan areas (s 22(1), item 6 and 7). The SDLs must comply with s 23 which, by subs (1), provides that “A long-term average sustainable diversion limit must reflect an environmentally sustainable level of take”.

125    An “environmentally sustainable level of take for a water resource” is defined by s 4 to mean:

environmentally sustainable level of take for a water resource means the level at which water can be taken from that water resource which, if exceeded, would compromise:

(a) key environmental assets of the water resource; or

(b) key ecosystem functions of the water resource; or

(c) the productive base of the water resource; or

(d) key environmental outcomes for the water resource.

126    In this context, the Basin Plan must include a water quality and salinity management plan (s 22(1), item 10) and the Plan must identify the key causes of water quality degradation in the Murray-Darling Basin (s 25(1)(a)) and include water quality and salinity objectives for the Murray-Darling water resources (s 25(1)(b)).

127    The water resource plans for water resource plan areas, in addition to incorporating the SDL for the area, must include requirements, by s 22(3), in relation to:

(c)    The sustainable use and management of the water resources of the water resource plan area with that diversion limit; and

…

(e)    planning for environmental watering; and

(f)    water quality and salinity objectives for the water resource plan area.

128    The purpose of the functions of the Water Holder is as set out in s 105(3) and (4):

    To protect or restore the environmental assets of the Basin and other areas outside the Basin where the Commonwealth holds water, so as to give effect to relevant international agreements.

    The Water Holder must manage the Commonwealth Environmental Water Holdings in accordance with the environmental watering plan in the Basin and the plan if any, that relates to environmental watering and is specified in regulations in relation to an area outside the Basin, as well as any operating rules that the Minister has made under s 109 and any environment watering schedules to which the Water Holder is party.

129    The power of the Water Holder to dispose of its water holdings is strictly governed by the environmental considerations as set out in s 106.

130    The Minister’s power to make rules for the Basin Water market is subject to the objectives as set out in Sch 3, cl 3. The Basin Water market and trading principles are set out in Sch 3, cl 4.

131    The primary judge concluded, in respect of those challenged provisions, at [122] of his reasons, that the provisions establishing the SDLs, imposing the obligation to comply with the SDLs, the enforcement of the SDLs, and the role of the Water Holder are all concerned with the protection of the environment of the Murray-Darling Basin. His Honour considered they implement obligations found in the international agreements referred to in the Water Act which are concerned with environmental protection. Thus his Honour concluded that they were an exercise of the power to legislate in respect of external affairs under s 51(xxix), and the Water Act was not a law with respect to trade and commerce under s 51(i).

132    His Honour considered the same conclusion applied to Pts 2, 6, 8 and 11, which were also challenged separately, as well as to the individual sections challenged – ss 19(2), 22(1) (items 6, 7 and 8), 23 and 24, which all dealt with the establishment of SDLs and were concerned with environmental protection which implemented terms of international agreements on that subject and so were not laws with respect to trade or commerce.

133    By way of further observation, his Honour said that, even if they could be characterised as laws with respect to trade and commerce, they were not and could not have been made under s 51(i) of the Constitution. His Honour said that the challenged provisions were not limited to interstate or overseas trade but dealt with water resource management within and between Basin States without differentiation.

134    In our view, the primary judge’s conclusion as to the proper characterisation of the impugned parts and provisions of the Water Act is correct. While, as the respondents accepted before the primary judge and on the appeal, certain provisions of the Water Act within Pt 2 (such as ss 22(1) item 12, 26(1)(j) read with Sch 3, 36(3), 37(3), 60(3) and 61(3)) may be supported in some of their operations by s 51(i), these were not provisions impugned by the appellants. That such provisions may be supported by s 51(i) for their validity does not mean that the remainder of the provisions in Pt 2 or any other parts of the Water Act are similarly to be characterised as laws with respect to trade and commerce with other countries or among the States.

135    We consider, as his Honour found, that Pts 2, 6, 8 and 11 of the Water Act were enacted principally in reliance on the Commonwealth’s legislative power with respect to external affairs under s 51(xxix). Each of those parts and indeed the impugned provisions referred to above, are, as his Honour concluded, concerned with the protection of the environment of the Murray-Darling Basin and directed to implementing Australia’s international obligations under a variety of treaties.

136    In our view the impugned provisions are not made in reliance on s 51(i), nor could they be. No regulation of trade and commerce among the States is identified, even when focussing on the effect the operation of the Water Act is claimed to have.

137    In particular, it does not follow that because the implementation of the Basin Plan engages the creation of a water market in relation to the allocation or trading of entitlements to draw water from the Murray, the impugned provisions of the Water Act necessarily have the character of a law with respect to trade and commerce among the States. That persons may buy and sell water that flows down the Murray, as a commodity, does not mean those involved in such a market are engaged in interstate trade or commerce.

138    More particularly, we accept the submission made on behalf of the respondents that it is not sufficient to attract s 51(i) that it is possible that the law will have some form of vague and unspecified indirect economic “effect” on trade and commerce in Australia. See Airlines of NSW Pty Ltd v New South Wales [No 2] [1965] HCA 3; (1965) 113 CLR 54 at 113-115 (Kitto J); Attorney-General (WA); ex rel Ansett Transport Industries (Operations) Pty Ltd v Australian National Airlines Commission [1976] HCA 66; (1976) 138 CLR 492 at 499 (Barwick CJ), 502-503 (Gibbs J), 509-511 (Stephen J).

139    In our view, it was open to the primary judge to conclude, as he did, that the impugned parts and provisions of the Water Act are properly characterised as laws with respect to the external affairs–treaty power (in respect of environmental protection) and nothing more. We consider he was correct in so doing.

140    In these circumstances, we do not consider that any error is disclosed by his Honour’s determination that the alternative case put by the appellants in respect of ss 100 and 99 had no reasonable prospects of success if they were to proceed to a trial.

141    In these circumstances, it is not necessary for us to consider his Honour’s further observations, at [126] of his reasons, that the challenged provisions were not limited to interstate or overseas trade and dealt with water resource management within and between Basin States without differentiation.

142    In these circumstances, the primary judge did not err in finding that the ss 100 and 99 cases had no reasonable prospects of succeeding at trial.

Did the primary judge err in dismissing the s 92 case?

143    Ground 15 of the amended notice of appeal claims that the “primary judge erred in the construction and application of Constitution section 92”.

144    The primary judge’s reasoning in respect of s 92 may be summarised as follows.

145    Despite receiving correspondence from the respondents many months earlier, the appellants did not seek to amend their pleading to overcome identified deficiencies in their s 92 case until late in the adjourned hearing. Relevant amendments were then proposed which would:

(a)    delete much of [45] of the original pleading and all of [46]; and

(b)    add a new [47A] and [47B].

146    The proposed amended [45] provided:

The Act by its terms operation or effect discriminates against trade and commerce or intercourse in water entitlement among the States, in that it abolishes or impairs, by subjecting same to Commonwealth regulation, the existing State water markets within the Basin area and provides for a differently regulated Basin water market which treats interstate trade and commerce differently in different States by means of the SDL mechanism under the Basin Plan.

Particulars

I.    The Act preserves the existing different water marketing schemes in each of the Basin States as component parts of the new common basin water market, but alters certain components of those different water marketing schemes; and

II.    The Act allocates a different SDL shared resource unit to each of the Basin States; and

III.    The Act allocates different SDLs to water resource areas in different States.

147    After commenting on the difficulties of understanding this proposed amendment and observing that its basis seemed to be that the SDLs vary from one water resource plan area to another, his Honour stated in [153] that, for s 92 to invalidate a provision, “there must be a burden which discriminates against interstate trade and confers protection on intrastate trade”. His Honour found that the provisions relating to the fixing of the SDLs exhibited none of those features because:

(c)    the fixing of SDLs was not directed to trade and commerce at all, but involved a mechanism which was aimed at protecting the environment;

(d)    the fixing of the SDLs did not discriminate against interstate trade;

(e)    the SDLs were not fixed by reference to the geographical area of States, but rather by reference to State irrigation areas; and

(f)    the fixing of the SDLs did not operate in a way which protects intrastate trade.

148    The primary judge then dealt with what he described as an alternative “very generous reading” of the proposed amendment of [45], as advanced by the respondents, namely that the Water Act discriminated against interstate trade by abolishing State water markets and substituting a new common Basin-wide market. His Honour found that, even on that broader reading, the s 92 case was no more sustainable because the Water Act did not create a new Basin-wide market, but rather operated by accepting the existing State markets. His Honour concluded at [159] that since the claim proposed by the amendment to [45] was bound to fail, it should be refused.

149    His Honour then turned his attention to [47A] of the proposed amended statement of claim, which was in the following terms:

Further, the Act in its terms operation or effect provides for a Basin water market which aggregates State water markets under it and the imposition and/or continuation of restrictions in the State water markets by the transitional water resource plans which are discriminatory and protectionist.

Particulars

I.    The operation of the Act incorporates the differential water allocation entitlements provided under existing water schemes in each of the Basin States as transitional water sharing plans under the Commonwealth Act;

II.    Victoria's laws provide for a discriminatory and protectionist burden on interstate trade and commerce namely a 4% limit on sales of water entitlements;

III.    NSW's laws provide for a discriminatory and protectionist burden on trade including interstate trade and commerce in water entitlements involving extraction with a view to delivery to an environmental asset or for an environmental purpose.

150    The essence of this pleading was, the primary judge found, that the transitional provisions of the Water Act continued limitations imposed by Victorian and New South Wales legislation on the annual amount of water entitlements which could be sold from those States. Consequently it was claimed that the transitional provisions were discriminatory and protectionist, and invalid as infringing s 92 of the Constitution. The primary judge then identified the following inadequacies in the proposed amendment as so understood:

(a)    no challenge was made to Pt 11 of the Water Act, in which the transitional provisions were found;

(b)    no timely notice under s 78B of the Judiciary Act had been given in relation to this particular challenge; and

(c)    there was no explanation of the link between the limitations imposed by the State laws and how those limitations were picked up by the Water Act.

151    His Honour acknowledged that these inadequacies were curable, but concluded that the following two matters doomed to fail any s 92 claim based on the proposed amendment:

(a)    if the limitations contravened s 92, their source was in State law and not in the Water Act. If those State laws were invalid, the Water Act would not be effective to implement them, but the Water Act itself would not contravene s 92; and

(b)    the NSW limitation was imposed in 2013, consequently it could not have been part of a Transitional Water Resource Plan or an Interim Water Resource Plan as defined respectively in ss 241 and 242 of the Water Act, with the consequence that the Water Act was not the source of the limitation.

152    The primary judge explained the operation and effect of the transitional provisions in Pt 11 of the Water Act, which “picked up” two categories of pre-existing State water plans, which were designated as Transitional Water Resource Plans or Interim Water Resource Plans (see [62]-[65]). It is clear from [63] that his Honour regarded both the New South Wales water management plans (which were specified in Sch 4 of the Water Act) as well as the 129 water resource management plans made under Victorian legislation (which were prescribed for the purposes of s 241(1)(b) of the Water Act by the Water Regulations) to be Transitional Water Resource Plans. His Honour also stated at [63] that each of the Victorian plans would cease to have effect on 30 June 2019. His Honour further observed at [65] that, by operation of s 245(2) of the Water Act, the Transitional and Interim Water Resource Plans prevailed over the provisions of the Basin Plan in the event of a relevant inconsistency.

153    His Honour explained in [165] that the proposed amendment to [47A] should be refused on the basis that the proposed challenge to the constitutional validity of the Water Act could not succeed because the source of any infringement of s 92 was to be found in the State laws or, alternatively, the New South Wales limitation could not succeed because it was not picked up by the Water Act.

154    The primary judge also found at [166] that the proposed amendment to [47A] should be refused on the following two discretionary grounds. First, the pleading lacked sufficient clarity and it should be concluded that the applicants were incapable of producing a comprehensible formulation of the claim given the passage of time since its deficiencies were highlighted by the respondents. Secondly, even if the restriction imposed by Victorian law was picked up by the Water Act, his Honour stated that the challenge to that aspect of the Act was “of limited significance because cl 12.17 of the Basin Plan prohibits restrictions on the sale of water entitlements” and that, although the prohibition would commence operation on 1 July 2014, the Victorian limitation would apply only until December 2014 by operation of s 245(2) of the Water Act. Consequently, his Honour found that a successful challenge would have effect only for several months and there was no evidence that any harm was anticipated in that period. For reasons which will be developed below, we consider that his Honour may have overlooked his earlier finding in [63] that the Victorian restrictions would operate up until 30 June 2019. However, for reasons which we will explain, we do not consider any error to be material.

155    The primary judge also rejected the application to add the proposed [47B], which was in the following terms:

The Act creates a centralised market system and confers power upon the First Respondent the owner of tradeable water rights managed by the Holder its servant or agent and upon the Holder in trade or commerce among the States and or in intercourse among the States in the Basin water market with a preferential and dominant position which has the operation or effect of burdening freedom of trade and/or commerce by other market participants.

Particulars

I.    The Holder has a dominant position in each State and each water resource plan market;

II.    The Holder intends to engage in counter-cyclical trade;

III.    The Holder has imposed terms upon sellers in the Basin water market in Victoria and South Australia which has restricted the sellers from re-entering the market for a period of 5 years whereby the Holder has deterred or prevented a person from engaging in competitive conduct.

IV.    The Holder's position permits and/or confers a discretion and power upon the First Respondent and himself to distort and treat different water resource plan markets in different States differently.

156    The primary judge held that it would be futile to allow the proposed amendment because it did not plead a s 92 claim which could succeed because:

(a)    it did not allege the necessary elements of a s 92 claim, namely that the burden on the freedom of interstate trade discriminates against interstate trade in a protectionist way (relying on Betfair Pty Ltd v Racing New South Wales [2012] HCA 12; (2012) 249 CLR 217).

(b)    the pleading was at odds with Pt 6 of the Water Act under which the Water Holder is given the power to trade in water entitlements, which power is limited, however, to the purpose of addressing the environmental needs of the Murray-Darling Basin and does not discriminate between interstate and intrastate trade; and

(c)    although the particulars of the proposed amendment alleged that the Water Holder was responsible for imposing conditions on the purchase of water entitlements, the uncontradicted evidence was that water entitlements had been purchased by the Commonwealth under the Financial Management and Accountability Act 1997 (Cth) and not by the Water Holder, who simply holds and manages water holdings owned by the Commonwealth.

157    In their outline of written submissions in the appeal, the appellants’ challenge to the primary judge’s findings on s 92 focused on the following contentions:

(a)    the refusal to allow the amendment in proposed [47A] on the basis that Reg 11.01 and Sch 4 to the Water Regulations gave an operation to the Victorian transitional water resource plans which they otherwise did not have, and it is this operation which is discriminatory and protects Victorian holders of water entitlements to the detriment of persons from other States. Moreover, even if the Victorian provisions themselves were invalid, they nevertheless had been picked up and applied as an incident of the Water Act;

(b)    as to the discretionary grounds for refusing the proposed amendment, the primary judge erred in finding that the s 245(2) operated in a way which meant that the Victorian provision would continue only until 31 December 2014 because in fact it would continue until 30 June 2019, being the date prescribed by Sch 4 of the Water Regulations (referring to cl 29 of Ch 12 of the Water Trading Rules); and

(c)    the primary judge erred in making significant findings of fact in [157] and [158] of the reasons for judgment (i.e. that the Water Act did not by its operation and effect create a new Basin water market and then finding that there was no protectionist effect upon interstate trade) because it was inappropriate summarily to dismiss a s 92 case involving complex underlying facts relating to an alleged discriminatory burden.

158    In oral address, the appellants challenged the primary judge’s finding at [164] that the 3 per cent limitation under the New South Wales regime was imposed in 2013 (i.e. after the making of the Basin Plan) and, therefore, could not have been part of either a Transitional or an Interim Water Resource Plan, with the consequence that the Water Act could not be the source of the limitation. They argued that this finding overlooks the text of s 241(1)(b) of the Water Act, which defines a “transitional water resource plan” as including a plan that is either specified in Sch 4 or prescribed by the regulation “together with any instruments made under or for the purposes of that plan (whether made before or after Schedule 4 commences)” (emphasis added). To illustrate the operation of this provision, the appellants pointed out that item 18 of Sch 4 prescribed the New South Wales Murray and Lower Darling Regulated Rivers Water Sources 2003 – Water Sharing Plan. Regulation 50(2) of that particular plan provided that applications for access licence dealings may be granted subject to the Minister’s access licence dealing principles as gazetted from time to time under s 71Z of the Water Management Act 2000 (NSW). The appellants further submitted that the 3 per cent limitation on the amount of water that could be traded out of the New South Wales Murray and Lower Darling for environmental use, which was imposed by the Access Licence Dealing Principles Order (No 1) 2013 – Murray Darling Basin, is therefore part of the Transitional Water Resource Plan within the meaning of s 241(1)(b) of the Water Act.

159    As will shortly emerge, a fundamental difficulty with this contention lies in the fact that, by a further order dated 20 February 2014 which was made under s 71Z of the Water Management Act, the earlier order upon which the appellants relied was repealed. This is relevant to the utility of granting any relief even if the appellants were otherwise correct in their s 92 case.

160    As to the position regarding Victorian laws which imposed trading restrictions, as the primary judge found at [63], Victoria’s 129 water resource management plans were prescribed as Transitional Water Resource Plans for the purposes of s 241(1)(b) of the Water Act. In the proceedings below, the respondents relied on an affidavit by Mr Anthony Slatyer, who held the position of First Assistant Secretary in the Water Reform Division in the Department of Sustainability, the Environment, Water, Population and Communities. Mr Slatyer described the Transitional Water Resource Plan that applied to the first appellant. After noting that the first appellant resided in the Merbein Irrigation District in Victoria and held a beneficial interest in water use licence No WUL 021471, Mr Slatyer said that under the Water Act 1989 (Vic), the first appellant’s bulk entitlement was determined by the Bulk Entitlement (River Murray – Sunraysia Rural Water) Conversion Order 1999. He stated further that under item 90 of Sch 4 of the Water Regulations prescribed the Bulk Entitlement (River Murray – Sunraysia Rural Water) Conversion Order 1999, as amended by the Bulk Entitlement (River Murray – Sunraysia Rural Water) Conversion Amendment Order 2005 and the now Bulk Entitlement (River Murray – Sunraysia Rural Water) Conversion Further Amendment Order 2007, as a Transitional Water Resource Plan (Sunraysia Bulk Entitlement Order). Mr Slatyer further explained that the Water Regulations specified that the Sunraysia Bulk Entitlement Order would cease to have effect on 30 June 2019. For completeness, it might be noted that, while Mr Slatyer also described the South Australian Transitional Water Resource Plan which applied to the second appellant, it is unnecessary to deal with that matter because the proposed pleading in [47A] was particularised as relating only to the laws of New South Wales and Victoria, and not South Australia.

161    For the following reasons, we substantially agree with the respondents’ contentions that none of the matters raised by the appellants involves appealable error.

162    First, his Honour did not err when he found that, even if the Victorian or New South Wales provisions were invalid, the Water Act would not be effective to pick them up because, on its proper construction, s 241(1)(b) (which conferred the power to prescribe a plan) is limited to the parts which prescribe a plan that is validly made and not a nullity. That construction is consistent with the presumption in favour of validity (see Federal Commissioner of Taxation v Munro (1926) 38 CLR 153 at 180 per Isaacs J; Attorney-General (Vict.) v The Commonwealth [1945] HCA 30; (1945) 71 CLR 237 at 267 per Dixon J and Lim v Minister for Immigration, Local Government and Ethnic Affairs [1992] HCA 64; (1992) 176 CLR 1 at 14 per Mason CJ). Such an approach is also consistent with s 15A of the Acts Interpretation Act 1901 (Cth), which requires the Water Act to be read and construed subject to the Constitution and so as not to exceed the Commonwealth’s legislative power. There is nothing in the Water Act which manifests a contrary intention which would displace the operation of the presumption or that rule of construction.

163    Even if that presumption and rule of construction were not available and the New South Wales and Victorian limitations on water trade were invalid as contrary to s 92 of the Constitution, we consider that there are compelling reasons why there would be no utility in declaring the relevant provisions in the Water Act which picked up the relevant State provisions to also be invalid. That is because, as will shortly emerge, the limitations imposed by the New South Wales and Victorian laws ceased to operate after 20 February 2014 and 1 July 2014 respectively.

164    Secondly, as noted above, there is an additional difficulty in relation to the appellants’ case as it related to limitations on trading imposed under the New South Wales regime. That is because the Access Licence Dealings Principles Order (No 1) 2013 – Murray Darling Basin, was repealed from 20 February 2014 by the Repeal of Access Licence Dealing Principles (No 1 – Murray Darling Basin) Order 2014. Accordingly, there would be no utility in granting relief in respect of this aspect of the matter.

165    Thirdly, there is a further difficulty with the appellants’ challenge insofar as it related to limitations imposed by the Access Licence Dealing Principles Order (No 1) 2013 – Murray Darling Basin. As the respondents pointed out, although that Order imposed a 3 per cent limit on the quantity of water traded in the New South Wales Murray Darling Basin valley, it was expressly stated in cl 3 of Sch 1 of that Order that the limitation did not apply inter alia to dealings where the transferee has certified in writing, if the water is not to be used in the State of New South Wales, that it will be used for irrigation. In other words, this exemption meant that the limitation did not prevent the transfer of water to irrigators outside New South Wales. Accordingly, there are grave doubts whether the appellants, as irrigators operating outside New South Wales, would have standing to challenge the provision if the proposed amendment had been allowed.

166    Fourthly, although the primary judge may have erred in concluding in [166] that the Victorian restrictions would end in December 2014 by operation of s 245(2) of the Water Act (as opposed to 30 June 2019, as explained in Mr Slatyer’s affidavit), this was one of two separate grounds relied upon by his Honour in refusing the amendment on a discretionary basis. We consider that the other ground, namely the lack of sufficient clarity in the proposed pleading and the appellants’ failure to produce a comprehensible formulation of their claim despite generous opportunities to do so, provides sufficient justification for the primary judge’s refusal to allow the amendment on discretionary grounds. Accordingly, any error is not material.

167    In any event, it might also be noted that, by a Ministerial Order made on 1 July 2014 under the Water Act 1989 (Vic) (i.e. after the judgment below was delivered), the 4 per cent limit on trades out of the district imposed by Victoria’s Trading Rules for Regulated Water Systems in Northern Victoria (and which applied inter alia to the Merbein Irrigation District), was removed. And, pursuant to s 242(3) of the Water Act, these Trading Rules were due to cease in any event on 31 December 2014. Accordingly, although the primary judge’s reasoning in [166] may have been incomplete or perhaps misdirected, the outcome was correct when regard is had to the subsequent removal of the 4 per cent limit on trade. This has implications for the utility of allowing the proposed amendment.

168    Fifthly, in respect of both proposed [47A] and the other proposed amendments, we respectfully agree with the primary judge’s analysis and conclusion that the appellants’ original and proposed s 92 claims were bound to fail because the challenged provisions of the Water Act do not discriminate between the interstate trade in water entitlements as against intrastate trade in such entitlements, nor do they have the requisite protectionist quality (see Betfair at [35]-[36] and [55]-[56]).

169    Finally, as to the appellants’ complaint that the primary judge erred in making significant findings of fact in [157] and [158] in what in substance was a summary dismissal case, we do not accept that his Honour’s findings in those paragraphs constitute findings of fact. Rather they represent the primary judge’s legal analysis of the effect and operation of the relevant provisions of the Water Act as both creating a new Basin-wide market and in not discriminating between interstate and intrastate trade in water in regulating trading in tradable water rights.

Did the primary judge err in dismissing the compensation case?

170    Ground 20 of the amended notice of appeal claims that:

The primary judge erred in the construction and application of s 254 of the [Water Act] and (sic), including but not limited to:

(a)    Finding that there was no measurable economic or financial benefit or advantage to the First Respondent or another person from the loss or taking of carryover water attributable to the Respondents;

(b)    Finding that the Applicants’ loss and damage relating to their water entitlements and land with respect to irrigation and conservation infrastructure by operation of the law did not effect an acquisition of property;

(c)    Finding at an interlocutory hearing that the claims were founded upon evidentiary and factual misconceptions;

(d)    Holding that there was no sustainable claim in respect of losses suffered by the Applicants with respect to their land and water resources resulting from the activities and the operation of Parts 6 and 11 of the law relating to the Commonwealth Environmental Water Holder;

(e)    Rejection of the claims for damages founded upon Constitution s 100 and s 254 of the law.

171    Grounds 4 and 5 of the amended notice of appeal may also be relevant to this issue. Ground 4 alleges that the primary judge erred in holding that “the policy of Government is relevant to the construction of or the invalidity or otherwise of the law”. Ground 5 alleges that the primary judge erred in “having regard to disputed issues of constitutional and other facts”.

172    Section 254 of the Water Act provides:

Compensation for acquisition of property

(1)    If the operation of this Act would result in an acquisition of property from a person otherwise than on just terms, the Commonwealth is liable to pay a reasonable amount of compensation to the person.

(2)    If the Commonwealth and the person do not agree on the amount of the compensation, the person may institute proceedings in the Federal Court of Australia for the recovery from the Commonwealth of such reasonable amount of compensation as the court determines.

(3)    In this section:

"acquisition of property" has the same meaning as in paragraph 51(xxxi) of the Constitution.

"just terms" has the same meaning as in paragraph 51(xxxi) of the Constitution.

173    The primary judge described the allegations in the relevant pleadings as lacking clarity and failing to identify the requisite elements to plead a cause of action under s 254. Taking into account counsel’s explanation as to the intended meaning of the s 254 claim, however, the primary judge found that, for the following reasons, the appellants had no reasonable prospect of prosecuting that claim. First, it was fatal to their s 254 case, which relied upon the principles applicable to s 51(xxxi) of the Constitution, that neither the Commonwealth nor any other person obtained a benefit of a proprietary nature. At [200], his Honour observed, correctly in our view:

Sections such as s 254 are directed to acquisition, not deprivation. The deprivation of rights in property does not of itself constitute an acquisition of property: Mutual Pools & Staff Pty Ltd v Commonwealth (1994) 179 CLR 155 at 185 per Deane and Gaudron JJ.

174    His Honour found that the appellants’ case was analogous to that in ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51; (2009) 240 CLR 140, where the High Court held that the reduction of the amount of water available to bore licensees did not amount to an acquisition of property. His Honour cited several passages from that decision, including the following statement by Hayne, Kiefel and Bell JJ at [147]:

It may readily be accepted that the bore licences that were cancelled were a species of property. That the entitlements attaching to the licences could be traded or used as security amply demonstrates that to be so. It must also be accepted, as the fundamental premise for consideration of whether there has been an acquisition of property, that, until the cancellation of their bore licences, the plaintiffs had ‘entitlements’ to a certain volume of water and that after cancellation their ‘entitlements’ were less. Those ‘entitlements’ were themselves fragile. They could be reduced at any time, and in the past had been. But there can be no acquisition of property unless some identifiable and measurable advantage is derived by another from, or in consequence of, the replacement of the plaintiffs’ licences or reduction of entitlements. That is, another must acquire ‘an interest in property, however slight or insubstantial it may be’. [Emphasis added by the primary judge].

175    The primary judge rejected the appellants’ argument that their case was analogous to Newcrest Mining (WA) Limited v Commonwealth [1997] HCA 38; (1997) 190 CLR 513. His Honour referred to several passages in ICM, including the following passage from [151] per Hayne, Kiefel and Bell JJ:

But the cancellation of licences to extract groundwater stands in sharp contrast with the effective acquisition of the substance of the proprietary interests in mining tenements considered in Newcrest. The rights enjoyed under those mining tenements included a grant and demise of the relevant parcel of land, and the mines and mineral deposits in or under the land together with appurtenant rights. By the legislation in issue in Newcrest, the land in question, except for minerals, was vested in the Director of National Parks and Wildlife, and operations for recovering minerals were forbidden. Both the Director and the Commonwealth thus acquired identifiable and measurable advantages. The Director acquired land freed from the rights of Newcrest to occupy it and conduct mining operations; the Commonwealth acquired the minerals freed from the rights of Newcrest to mine them.

176    His Honour explained at [206] that the appellants’ case was governed by ICM and not Newcrest “in that there was no measurable or identifiable advantage conferred on the Commonwealth in consequence of Mr Lee and Mr Gropler’s alleged loss of carryover entitlements”.

177    We respectfully agree with his Honour’s legal analysis and conclusion, which disclose no appealable error.

178    For the following reasons, we reject the appellants’ further submission, which was made in their written reply, that the primary judge erred in limiting the operation of s 51(xxxi) and s 254 to where a benefit is obtained by the Commonwealth and not also a third party. First, his Honour’s reasons necessarily reflect the way in which the appellants pleaded their case. As to the first appellant’s claim, [72] of the proposed further amended statement of claim expressly claimed that it was the Commonwealth (i.e. not anyone else) who obtained a benefit in respect of each alleged acquisition of the first appellant’s property. As to the second appellant, [77] expressly claimed that the Commonwealth derived an advantage in purchasing water at a reduced price and in the Water Holder purchasing water at a reduced price (there was a cross-reference to the particulars to [72]). The reference to the Water Holder purchasing water at a reduced price is simply untenable because, as noted above, that officeholder has no such power and, as further noted above, the uncontradicted evidence was that the purchaser was the Commonwealth. In all these circumstances, the pleading could only relate to the Commonwealth alone and no other person. Accordingly, it is understandable that the primary judge focused his analysis on the alleged benefit or advantage gained by the Commonwealth and not any other person.

179    Secondly, and in any event, it is evident that the primary judge fully appreciated that, in principle, neither s 51(xxxi) nor s 254 was limited in its operation to circumstances only where the Commonwealth and not a third party, acquires a benefit. That is evident, for example, from the reference in [200] of the reasons for judgment to the obstacle which lay in the appellants’ case on this subject, namely that “there was no acquisition of property from him by any other person” (emphasis added), i.e. not limited to the Commonwealth alone.

180    We also respectfully agree with the primary judge’s view that there were, in any event, the following factual misconceptions in the s 254 claim, namely:

(a)    in fact, the water entitlements held by the Water Holder have the same terms as the water entitlements held by other holders (see [207]);

(b)    there was unchallenged evidence that, for the years 2008/2009 to 2011/2012 across the Murray-Darling Basin on a proportional basis, the Water Holder used more and carried less of the water available under the Commonwealth Water Holdings compared with the average use and carryover of other water entitlement holders ([208]); and

(c)    the appellants’ contention that the benefit obtained by the Commonwealth is that it obtained water at a reduced price was inconsistent with evidence to the effect that, up until the time of the hearing, the Water Holder had not sold any water entitlements, but was in the process of considering whether he would do so in the future. The post-hearing evidence disclosed that he had decided in January 2014 for the first time to sell a limited amount of temporary water allocation in northern New South Wales which was not required for environmental purposes ([219]).

181    We are not satisfied that the appellants have demonstrated any appealable error in the primary judge’s reasons. Indeed, we respectfully agree with his Honour’s reasoning and conclusions regarding the s 254 claims. In particular, we consider that his Honour correctly characterised the basis of the appellants’ claims as being a desire to protect their “general commercial and economic position”. It is well established that s 51(xxxi) (and, consequently, s 254 of the Water Act), do not apply to such matters (see, for example, ICM at [81]).

182    Furthermore, to the extent that the appellants’ claim involves a complaint concerning the price they obtained for the water they sold to the Commonwealth, we consider that the primary judge was also correct to describe that claim as having no reasonable prospects of success because it is clear that s 51(xxxi) (and, therefore, necessarily s 254), has no application to a voluntary transaction (see Trade Practices Commission v Tooth & Co Ltd [1979] HCA 47; (1979) 142 CLR 397 at 416-417 per Stephen J; British Medical Association v The Commonwealth (1949) 79 CLR 201 at 270-271 per Dixon J (which passage was approved in ICM at [81] and [82] per French CJ, Gummow and Crennan JJ); Waterhouse v Minister for the Arts and Territories (1993) 43 FCR 175 at 180 per Black CJ and Gummow J and Esposito v The Commonwealth [2013] FCA 546 at [26]-[29] per Griffiths J).

183    As noted above, ground 20 of the notice of appeal (particular (e)) claims that the primary judge erred by rejecting the appellants’ claims for damages founded not only upon s 254 of the Water Act, but also s 100 of the Constitution. In [78] of the proposed further amended statement of claim, the appellants claimed that the Commonwealth had abridged their rights under s 100 of the Constitution to the reasonable use of the waters of the River Murray for irrigation and conservation and that they are entitled under s 100 to recover damages. They complained that the primary judge did not deal with this claim, although his Honour referred to it in [8] of his reasons for judgment.

184    It is true that the primary judge did not further discuss this claim in his reasons, presumably because it simply did not arise in circumstances where his Honour found the s 100 claim to be untenable, a conclusion with which we respectfully agree.

185    Furthermore, the appellants’ claim for damages is predicated on the proposition that s 100 of the Constitution creates a private right which is enforceable in an action for damages, a proposition which is contrary to existing High Court authority (see, for example, Kruger v The Commonwealth [1997] HCA 27; (1997) 190 CLR 1 at 46-47 per Brennan CJ, at 93 per Toohey J, at 124-126 per Gaudron J and at 146-148 per Gummow J; British American Tobacco Australia Ltd v State of Western Australia [2003] HCA 47; (2003) 217 CLR 30 at [40] per McHugh, Gummow and Hayne JJ and Mulholland v Australian Electoral Commission [2004] HCA 41; (2004) 220 CLR 181 at [181] per Gummow and Hayne JJ).

Did the primary judge err by failing to find that the s 100 claim did not give rise to a “matter”?

186    Given our findings above in respect of the s 100 case advanced on behalf of the appellants, it is not necessary to consider this issue raised by the notice of contention.

Conclusion and orders

187    For these reasons, the following orders should be made:

1.    Mr Lee and Mr Gropler be granted leave to appeal.

2.    The interlocutory application dated 21 August 2014 to read the further affidavits of Mr Gropler dated 12 August 2014 and Mr Lee made on 12 August 2014, be refused.

3.    The appeal be dismissed.

4.    The appellants pay the costs of the respondents upon the application for leave to appeal and the appeal, to be assessed, if not agreed.

Associate:

Dated:    18 December 2014