FEDERAL COURT OF AUSTRALIA
Lee v Commonwealth of Australia [2014] FCA 432
| Place: | Melbourne | ||
| Division: | GENERAL DIVISION | ||
| Category: | Catchwords | ||
| Number of paragraphs: | |||
| Solicitor for the Applicants: | Maloney Anderson Legal | ||
| Counsel for the Respondents: | Dr S Donaghue SC with Mr C Lenehan | ||
| Solicitor for the Respondents: | Australian Government Solicitor |
| IN THE FEDERAL COURT OF AUSTRALIA | |
| First Applicant GRAEME PETER JAMES GROPLER Second Applicant | |
| AND: | First Respondent MURRAY DARLING BASIN AUTHORITY Second Respondent |
| DATE OF ORDER: | |
| WHERE MADE: |
THE COURT ORDERS THAT:
1. The application to amend [45] of the statement of claim, and to add [47A], and [47B] to the statement of claim, is refused.
2. The interlocutory application filed by the applicants on 8 July 2013 seeking answers to separate questions is dismissed.
3. The proceeding is dismissed.
4. The applicants pay the respondents' costs of the proceeding.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
| VICTORIA DISTRICT REGISTRY | |
| GENERAL DIVISION | VID 1129 of 2012 |
| BETWEEN: | DANIEL THOMAS LEE First Applicant GRAEME PETER JAMES GROPLER Second Applicant |
| AND: | COMMONWEALTH OF AUSTRALIA First Respondent MURRAY DARLING BASIN AUTHORITY Second Respondent |
| JUDGE: | NORTH J |
| DATE: | 2 May 2014 |
| PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
| [1] | |
| [13] | |
| [15] | |
| [19] | |
| THE CIRCUMSTANCES IN WHICH THE CLAIMS OF MR LEE AND MR GROPLER ARISE | [26] |
| [27] | |
| [33] | |
| [36] | |
| [36] | |
| [41] | |
| [42] | |
| [43] | |
| [46] | |
| [48] | |
| [51] | |
| [56] | |
| [57] | |
| [59] | |
| [60] | |
| [61] | |
| [62] | |
| [66] | |
| [71] | |
| [80] | |
| [80] | |
| [84] | |
| [103] | |
| [146] | |
| [175] | |
| [187] | |
| [192] | |
| [222] | |
| [225] | |
| [234] |
1 The applicants, Daniel Thomas Lee and Graeme Peter James Gropler, are horticultural farmers. Their farms depend on irrigation water from the Murray River.
2 The Water Act 2007 (Cth) (the Act) has a significant function in the regulation of the provision of irrigation water in the Murray-Darling Basin.
3 In this action Mr Lee and Mr Gropler claim against the first respondent, the Commonwealth of Australia (the Commonwealth) and against the second respondent, the Murray-Darling Basin Authority (the Authority) that the Act, or parts of it, are unconstitutional on several grounds.
4 First, the applicants contend that the Act, or specified parts of it, contravene s 99 of the Commonwealth of Australia Constitution Act 1900 (the Constitution) which provides that:
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.
5 Second, they say that the Act, or parts of it, contravene s 100 of the Constitution which provides that:
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.
6 Third, they argue that the Act, or parts of it, significantly interfere with the exercise of the constitutional power of the Basin States contrary to the principle in Melbourne Corporation v Commonwealth (1947) 74 CLR 31; [1947] HCA 26 (Melbourne Corporation).
7 Fourth, Mr Lee and Mr Gropler say that the Commonwealth has failed to comply with s 101 of the Constitution which provides that:
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.
8 By way of relief, Mr Lee and Mr Gropler seek declarations of invalidity and consequential injunctions. Mr Lee and Mr Gropler seek the relief under s 100 as representatives of certain other irrigators who use the waters of the Murray River pursuant to water entitlements such as those held by Mr Lee and Mr Gropler. Further, for the contravention of s 100, they seek damages resulting from the abridgment of their reasonable use of waters of rivers.
9 In addition to the claims made under the Constitution, Mr Lee and Mr Gropler claim that they are entitled to compensation pursuant to s 254(1) of the Act which provides that:
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.
10 The proceeding was commenced in the High Court of Australia. On 29 November 2012 it was remitted to this Court under s 44 of the Judiciary Act 1903 (Cth) (the Judiciary Act).
11 The original statement of claim was filed in the High Court on 31 October 2012. On 4 March 2013, an amended statement of claim was filed in this Court (the amended statement of claim). In circumstances which will be discussed later in these reasons for judgment, on 5 July 2013, Mr Lee and Mr Gropler applied to amend the amended statement of claim in the form of a further statement of claim containing the proposed amendments (the proposed amended statement of claim).
12 On 28 May 2013 the Commonwealth and the Authority served on each of the States and Territories Notices of a Constitutional Matter pursuant to s 78B of the Judiciary Act in respect of the matters raised in the amended statement of claim. It appears that on 28 November 2013, following the conclusion of the hearing, the Commonwealth and the Authority filed a further Notice of a Constitutional matter in this Court giving notice of the matters contained in the proposed amended statement of claim. There were no appearances in response to the Notices.
13 On 30 April 2013, the Commonwealth and the Authority filed an interlocutory application seeking orders in effect as follows:
(a) 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 Chapter 3 of the Constitution, and of s 39B(1A)(b) or s 44(3) of the Judiciary Act;
(b) that there be judgment for the Commonwealth and the Authority on all or some of the claims under s 31A of the Federal Court Act 1976 (Cth) (the Federal Court Act);
(c) that the Statement of Claim or parts of it be struck out under r 16.21 of the Rules of the Federal Court 2011;
(d) that the proceeding not continue as a representative proceeding.
14 It is convenient to focus on the relief sought by the Commonwealth and the Authority under s 31A of the Federal Court Act.
THE APPROACH TO S 31A OF THE FEDERAL COURT ACT
15 Section 31A of the Federal Court Act provides:
(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
16 As this section is of relatively recent origin and represents a departure from pre-existing law, it is well to recount the proper approach which should be taken to an application brought under it. The matter was addressed by Hayne, Crennan, Kiefel and Bell JJ in Spencer v Commonwealth (2010) 241 CLR 118; [2010] HCA 28 (Spencer) who said at [51] to [53]:
51. First, the central idea about which the provisions pivot is “no reasonable prospect” (emphasis added). The choice of the word “reasonable” is important. If s 31A is to be seen as deriving from r 24.2 of the Civil Procedure Rules 1998 of England and Wales, its provisions underwent an important change in the course of their translation from that jurisdiction to this. The English rule speaks of "no real prospect"; s 31A speaks of “no reasonable prospect”. The two phrases convey very different meanings.
52. Secondly, effect must be given to the negative admonition in sub-s (3) that a defence, a proceeding, or a part of a proceeding may be found to have no reasonable prospect of successful prosecution even if it cannot be said that it is “hopeless” or “bound to fail”. It will be necessary to examine further the notion of “no reasonable prospect”. But before undertaking that task, it is important to begin by recognising that the combined effect of sub-ss (2) and (3) is that the enquiry required in this case is whether there is a “reasonable” prospect of prosecuting the proceeding, not an inquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.
53. In this respect, s 31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail. That this was the basis of earlier decisions may be illustrated by reference to two decisions of this Court often cited in connection with questions of summary judgment: Dey v Victorian Railways Commissioners and General Steel Industries Inc v Commissioner for Railways (NSW).
[Footnotes omitted.]
[Emphasis added.]
17 At [58]-[60] their Honours said:
58. How then should the expression “no reasonable prospect” be understood? No paraphrase of the expression can be adopted as a sufficient explanation of its operation, let alone definition of its content. Nor can the expression usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it cannot be said that there is “no reasonable prospect”. The judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like “no reasonable prospect” is to be avoided. Consideration of the difficulties that bedevilled the proviso to common form criminal appeal statutes, as a result of judicial glossing of the relevant statutory expression, provides the clearest example of the dangers that attend any such attempt.
59. In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like “clearly”, “manifestly” or “obviously”) as “frivolous”, “untenable”, “groundless” or “faulty”. But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word “reasonable”, in the phrase “no reasonable prospect”, be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a “frivolous”, “untenable”, “groundless” or “faulty” claim.
60. Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is “no reasonable prospect” of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to “no reasonable prospect” can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase “just and equitable” when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.
[Footnotes omitted.]
18 French CJ and Gummow J said at [25]:
25. Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter. Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law. But where the success of proceedings is critically dependent upon a proposition of law which would contradict a binding decision of this Court, the court hearing the application under s 31A could justifiably conclude that the proceedings had no reasonable prospect of success.
[Emphasis added.]
19 The Commonwealth and the Authority filed five affidavits in support of the application, namely an affidavit affirmed on 13 May 2013 by Russell Alexander James, who is the Executive Director of the Policy and Planning Division of the Authority, an affidavit affirmed on 13 May 2013 by David John Papps, who holds the position of Commonwealth Environmental Water Holder, an affidavit affirmed on 13 May 2013 by Emily Jane Nance, who is a solicitor employed by the Australian Government Solicitor, the lawyers for the Commonwealth and the Authority, an affidavit affirmed on 13 May 2013 by Mary Beatrice Harwood, who is the First Assistant Secretary in the Water Efficiency Division of the Department of Sustainability, Environment, Water, Population and Communities (the Department), and an affidavit affirmed on 14 May 2013 by Anthony James Slatyer, who is the First Assistant Secretary in the Water Reform Division of the Department.
20 Mr Lee and Mr Gropler relied on affidavits respectively sworn and affirmed by them on 21 June 2013.
21 The argument on the interlocutory application centred largely on the pleading of the claim contained in the amended statement of claim. However, the affidavits filed by the Commonwealth and the Authority provided a useful explanation of the legislative scheme, and of government water policy relevant that scheme.
22 In greatly oversimplified terms, the gist of the legislative scheme and government policy is to ensure that some water previously used for irrigation in the Murray-Darling Basin would be utilised to increase the volume of water for environmental watering to a level sufficient to protect the environment of the Basin.
23 The affidavits filed by Mr Lee and Mr Gropler expressed their view that the legislative scheme and government policy impacted adversely on them. Again, in greatly oversimplified terms, their central, but not only concern was that the amount of water necessary for them to operate their farms was to be reduced so that their farm operations would become unviable.
24 The evidence of Mr Lee and Mr Gropler is outlined in these reasons for judgment for the purpose of explaining the quite complex background against which the legal arguments must be assessed. But their evidence is set out at greater length than would usually be warranted in an application such as the present. That is for a particular reason. As will be explained later in these reasons, the pleading of the claims is deficient in many respects. Further, when pressed to explain the way in which the claims were made, Mr King, who appeared as counsel for Mr Lee and Mr Gropler, was often unable to provide a comprehensible legal analysis. Given the caution which must attend any order for summary judgment, it is important for the Court to ensure that the full circumstances of Mr Lee and Mr Gropler are taken into account in considering the interlocutory application.
25 Before addressing the arguments on the interlocutory application directly, the next sections of these reasons for judgment set out the circumstances described by Mr Lee and Mr Gropler in which their claims arise, a description of the legislative scheme comprised by the Act and the Basin Plan made under it, and a description of the main elements of government water policy relevant to the statutory scheme.
THE CIRCUMSTANCES IN WHICH THE CLAIMS OF MR LEE AND MR GROPLER ARISE
26 First, there is a point of usage which should be noted. The Act operates in conjunction with State legislation, under which the water entitlements of Mr Lee and Mr Gropler arise. The State legislation and the Act employ different terminology for water entitlements. There are two concepts which are relevant to the claims and evidence, namely, water share and water allocation. A water share (or ‘water access entitlement’ pursuant to the Act) is an entitlement to be allocated water annually up to a maximum amount as specified by the water share. A water allocation (‘water allocation’ pursuant to the Act) is the actual volume of water which is allocated to a water share in a year. This may vary from year to year according to decisions of the relevant State body controlling allocations. ‘Water access right’ in the Act encompasses both of these entitlements. Unless it is necessary for a particular purpose, and for ease of reference, these reasons for judgment use the phrase ‘water entitlement’ to refer to entitlements to water under the Act generally.
27 Mr Lee farms block 68 in Merbein near Mildura on the Murray River in Victoria. His parents bought the original block in 1966 and have added to it since. Mr Lee began working in horticulture when he was 13 and has continued to do so for the past 48 years. He now manages the farming operation at Merbein which covers 54 acres. He grows oranges, wine grapes, pomegranates and conducts a fish farming operation.
28 The annual rainfall in the area is 250 mm. This is insufficient to support permanent plantings. It is accepted in the industry that grape vines require 9.144 megalitres per hectare of irrigation water, mandarins require 14.8 megalitres per hectare and navel oranges require 10.7 megalitres per hectare, plus leaching fraction of 10% to 15%.
29 Under Victorian legislation Mr Lee and his parents hold a water use licence based on these estimates and amounting to 276.5 megalitres per year. This licence sets the maximum amount of water which may be applied to the farm in any 12 month period.
30 Separate from the licence is a water share. That is a right under Victorian legislation which specifies the maximum amount of water which may be allocated to the owner in a year. The amount of the water allocation is determined according to weather conditions. A high reliability share is expected to yield 100 per cent allocation in 96 out of 100 years, not less than 80 per cent in two out of the other four years, and not less than 60 per cent in the remaining two years. Since 2007 water shares may be traded under Victorian legislation.
31 In May 2008, Mr Lee and his family owned a high reliability water share of 313.9 megalitres. In 2008, 150 megalitres were sold to a water trader for $2,400 per megalitre. In 2012 another 150 megalitres were sold to another water trader for $1,500 per megalitre. The first sale funded the purchase in 2008 of 100 megalitres of more reliable Murrumbidgee water by Mr Lee for $3,500 per megalitre. This was sold to the Commonwealth in 2012 for $1,750 per megalitre. Mr Lee and his parents retain a water share of 13.9 megalitres.
32 Mr Lee and his family also hold a delivery share under the Victorian legislation. This allows for access to the delivery system so water can be delivered from the river to the farm.
33 Mr Gropler and his wife live at Barmera in South Australia. In 1980 they bought three adjacent soldier settlement blocks and in 2007 a further two such neighbouring blocks. They now farm a total of 50 acres. Mr Gropler specialises in growing cherries which occupy about 30 acres of the property. He also grows wine and table grapes and some vegetables. He has spent his whole working life as a horticultural farmer.
34 The annual rainfall in this region is 220 mm. Without irrigation water the block would be unviable. The original water entitlements were established as the reasonable amount of water necessary to grow the crop produced by the property. In the case of Mr Gropler, the entitlement was fixed at 223.78 megalitres. In 2008 Mr Gropler sold to the Commonwealth 28 megalitres from his entitlement. He retains 195.3 megalitres.
35 Mr Gropler’s property falls within the area of the Cobdogla Irrigation Trust. The Trust is made up of 250 irrigators in the area. Mr Gropler has been the Chairman of the Trust for the last eight years. As such he is a board member of the Central Irrigation Trust established under the Irrigation Act 2009 (SA). The Central Irrigation Trust is constituted by 12 irrigation trusts in South Australia with a membership of 1500 irrigators. The Cobdogla Irrigation Trust holds a bulk licence and administers the irrigation and drainage infrastructure, including pipes and pumps, of the area. The Central Irrigation Trust administers the system of registration of irrigation interests.
The difficulties faced by Mr Lee and Mr Gropler
36 In his affidavit Mr Lee expressed his view that for at least a decade before 1998, as a result of agreements reached in the Council of Australian Governments, State governments issued large numbers of water licences at minimal cost to whomever would take them, whether the licences were to be used or not, in order to address the problem of salinity.
37 Prior to 1 July 2007, water licences were not tradeable in Victoria but were linked to the land. Then, from 1 July 2007, legislation in Victoria provided that the water entitlement was unbundled and a market was created for the sale of those water entitlements.
38 Mr Lee explained what he regards as the effect of unbundling as follows:
59. The effect of this, where the market permitted, was to give value to the unused portions of licences, including sleeper licences, and has had a very detrimental effect on my water security for the farm and my water entitlements and use.
60. The NWI [National Water Initiative] reforms in short diluted my rights by allowing over-allocated licence holders the same share as myself in consumptive water use, thereby activating as a tradeable commodity the water entitlements attached to their once valueless and useless licences.
61. The Water Act 2007 (Cth) picks up the NWI “reforms” and imposes them through the Basin Plan at a federal level. The adverse consequences and effect will cause further impact and loss once the Commonwealth water market starts in July 2014, as it expressly gives rights to overallocated licence holders, at the expense of irrigators who need their water such as myself.
62. When water was tied to land (prior to the unbundling in 2007), it was impossible to take 30% of our water away, as the buyer would have to take the farm as well. Now, the water entitlements can be sold and you can be left with useless pieces of land.
63. The Water Act 2007 (Cth) does not address the problem of overallocation of licenses.
39 Following from Mr King’s committed advocacy on behalf of Mr Lee and Mr Gropler, the Court was concerned to understand further the impact of the Act on Mr Lee and Mr Gropler. To this end they were invited by the Court to give oral evidence. In that evidence Mr Lee explained his view of the impact of unbundling in the circumstances in which it arose in the following exchange:
MR KING: In relation to Merbein, are you able to assist his Honour in explaining how the operation of the Water Act – that is the Commonwealth Water Act and the Basin Plan and the activities of the holder – have adversely affected the farm, including your farm – the farms and your farm – in the Merbein district – in particular quay costs and the value of your assets?
MR LEE: Certainly. Your Honour, I’m from Merbein, which is a small irrigation district on the Murray River downstream of Mildura in Victoria. Merbein has been there since 1909, and from 1909 until about 2008 we never enjoyed any less than 100 per cent of our water delivered to us. At the time of the water bundling when all this – what we’re concerned about here – from that moment on we got three years in a row where we were reduced to 95 per cent, then 43 per cent and then 35 per cent of our water, accordingly. We’ve since returned to 100 per cent, predominantly the cause of the drought, but we would argue very, very strongly that the unbundling of the water and the associated Acts have had a devastating effect on us. … Merbein has lost 38 per cent of its irrigated areas – no longer being watered. That’s a devastating effect.
HIS HONOUR: Is that because people have been bought out and have left?
MR LEE: Yes. Have sold water, a lot to the Commonwealth and a lot of Merbein properties were taken up in the pre-Commonwealth Water Act moved by Ms Harwood, who I would have loved to have the chance to question this morning but didn’t. Ms Harwood, through Minister Wong, put up a policy where they would buy out small horticulturalists who wished to exit the industry. But, as a surprise to all and sundry, a condition of that was that the irrigation infrastructure had to be removed from the land, all plantings had to be removed, the land laid bare, and then removed from irrigation for five years. That five year period still has not expired. Some of those properties may return in the near future. Other people, like ourselves, have sold water to the Commonwealth to reduce debt. And that is simply a consequence of these Acts which the government will not acknowledge have had any effect on us. An immediate effect to us, personally, was that about the same time – 2008 came along - our banks came to us all, as growers, and said, “Well, we had better have a look at what’s going on.” They informed us that as far as they were concerned, from that moment on, our property, which previously was valued at about 1.2 to 1.5 million dollars - land and water – our land had no commercial value or interest to the bank. Their only interest, from that moment on, upon which they would hold a mortgage, was our water. And that was the effect it had on us. It was – the banks took a commercial decision that, “This land is worthless without the water. The water has been separated from it. We can’t sell the land, because who the hell is going to buy that? But we certainly can sell the water”. And that’s what the bank’s position was, still is and continues to be. … We no longer know, and we were hoping that the court system would be able to tell us if we had a legal right to water and an agreement with the government of the day that led us, for generations, to reinvest and put our life’s work and savings into our properties – sorry, your Honour, because we, right now, stand to lose three generations of work, we stand to lose our farm and we stand to lose the very houses in which we live if this Act goes through unchallenged.
HIS HONOUR: Why do you say that?
MR LEE: Because that is the effect. The banks have wiped us because the water is separated from the land. They will say that isn’t the case, but it is.
HIS HONOUR: But you can hold onto the water, can’t you?
MR LEE: We’ve could have – we had no choice, your Honour. We had debt. We had to reduce debt. The only thing we could do was sell water.
HIS HONOUR: Well, how would you have reduced debt in the past?
MR LEE: We – through the drought, your Honour, and then through these water reforms when we were down to 35 per cent of our water ---
HIS HONOUR: But just don’t worry about these years. Go back 10 years?
MR LEE: We didn’t have a debt. The debt was mostly accumulated by doing two things: trying to buy enough water to keep the farm alive through the period when we only had 35 per cent of our water; and the other thing was changing water infrastructure on the farm to make it so efficient that we would use far less to produce equally as much.
HIS HONOUR: And when you got down to the 35 per cent that was because of the drought, was it?
MR LEE: That was one of the factors. The other factor was these laws, because these laws separated the land and water. And what happened when that happened was, there were very, very opportunistic corporate farms that bought up previously unused licences and activated them and developed property with government sanction, and suddenly water that had never been used was demanded at the time of shortage by far more users. There simply wasn’t enough to go around. The drought merely exposed the government’s inactions and mistakes and they have been further exacerbated by this Commonwealth Water Act and the plan. As I see it, your Honour, as an aside, I think it’s the stupidest thing this nation has ever done.
40 In his oral evidence given at the invitation of the Court, Mr Gropler explained his perception thus:
When they unbundled all the water it then become a lot more players in the water market and a market was established. It was established along the lines of an auction, not unlike what a commodity auction is under the Australian Stock Exchange. And we want to purchase water we buy our water on the water exchange and we turn up with our money on the day of our purchase, because that’s the way it does work on a stock exchange and a water exchange. However – and those water exchanges are under State controls and yet the Commonwealth Government buys its water from so-called willing sellers, and I dispute that because the only way that an irrigator would sell its water is if he’s tapped on the shoulder by his bank. So we’ve got a water market established where if we want to buy water we go with our money in hand on the day to buy it. The Commonwealth comes along and sets up a tender process. Now, they call tenders from so-called willing sellers but they’re the only ones in the market buying water at the time, so then the banks telling the grower, “You must sell some water to reduce your debt,” so at that stage the grower puts in his tender to the Commonwealth. … So the only asset that we’ve got left is the equity in our irrigation licence. It has been diminished from the trading price of $2650. It is now trading for $1400 when it’s sold to the Commonwealth under their tender process. … When somebody got the perception that they should unbundle the water, and they separated land from water and made it a commodity and it then traded on the so-called water exchange, which is run by the States but then the Federal Government circumvented, then we’ve changed our equity. My equity in my property has most probably gone from a couple of million dollars – I would be scratching now – the only asset I’ve got is my water and I’ve been told by the bank to sell some. My only asset would be 400, 500 now off that particular property. So if you amplify that effect across all the irrigators in South Australia, not to mention what has happened in Victoria, the immense impact that has been unravelled on to these areas is huge. In Cobdogla Irrigation Trust it is 32.6 per cent of our original bulk licence has been traded out. That’s left holes all over our district. The ages of our growers are, I would say, late 50s, 65, 70s and they were using their property as their retirement fund. Their properties are worth nothing and that is as a result of the way this has all unfolded. There is no water security left, there is no security in their properties left, and I’ve got a lot of friends and neighbours who aren’t with us today because they’ve actually topped themselves, to put it plainly, and it’s because of the pressures of it being handed out in this way and if I sounded a little bit emotional or disagreeable this morning it’s because I feel passionate about the way these people have been treated and when I hear bureaucracy trivialising that, it upsets me.
41 In his affidavit, Mr Lee said that the implementation of the Basin Plan under the Act would reduce the water available for his farm. He said at [65]-[66] of his affidavit:
65. Under the Murray Darling Basin Plan adopted in November 2012, 27.6% less water will be available for irrigation and for conservation. Once the current MDBA [Murray Darling Basin Authority] Plan is implemented in full, it will replace the current cap arrangement with the SDL [Sustainable Diversion Limit] which has as its goal 3200 gigalitres less.
66. If we cease to water 27.6% of the farm, or lose that water in respect of any part of the farming operation, the farm will be rendered useless and unviable. Further, the SDL affects and diminishes my share in the water source, which then impacts on the right to water use.
42 Mr Lee said that the proposal to introduce the Act gave rise to uncertainty among irrigation farmers. He said that the Commonwealth, through the Commonwealth Environmental Water Holder, offered to buy water entitlements on condition that the land was cleared and the irrigation infrastructure was removed and not replaced for at least five years. Many farmers agreed to sell. As a result 38 per cent of the Sunraysia District, in which Merbein is located, was dewatered. Two of Mr Lee’s neighbours sold their water entitlements. The resulting vacant land on the boundary of Mr Lee’s property, he said, has reduced the value of his farm from about $1.5 million to $354,000, a loss of value of $1.146 million. Mr Gropler had the same problem which he described in his affidavit thus:
47. … My property has also been substantially devalued, as a set out above. Aesthetically the whole community and surrounds look worse and run down, and much of the former infrastructure is not being used including public roads, and the pipelines. This also has had a resulting impact on the local residential community, with fewer retailers and less competition with resulting increased costs for basic equipment and consumer goods. This total impact is widely called the swiss cheese effect of the operation of the Holder’s activities under Water Act 2007, which has caused me and my farming operation further direct loss and damage.
43 Mr Lee said at [76] of his affidavit:
Once a farm is closed, the cost to distribute the water within the district remains the same – as you are maintaining an infrastructure for less and less people, that cost is spread amongst less and less people and the costs go up. Furthermore, the costs of running the irrigation system do not change even if less water is pumped. If there is (26.7%) (see Mr James’ affidavit) less water being irrigated than there used to be (as under the MDBA Plan), the fixed costs of distributing that water remain the same.
44 Mr Lee calculated the increase in delivery costs at $12,000 per year.
45 Mr Gropler said that the Commonwealth Environmental Water Holder purchased 30 per cent of the water entitlements in the Cobdogla Trust area. The Commonwealth Environmental Water Holder has terminated the delivery rights in respect of those purchases so the irrigation system now passes many vacant blocks and the remaining irrigators have to cover the cost of the delivery system and its maintenance. The fixed costs of delivery have increased by 30 per cent as a result.
Weakening of carryover water rights and water security
46 In his affidavit Mr Lee expressed his view that due to the purchase of water entitlements by the Commonwealth Environmental Water Holder, his water security and carryover entitlements have been weakened. Mr Lee said at [79]-[80] of his affidavit:
79. The further result of the Holder’s purchases, has been to weaken my water security and carry over rights in the water conservation facilities, especially in dry times. The Holders now has tagged for itself, excluding all other usage, large amounts of water in such facilities for environmental flows which were formerly available to irrigators for their water security both high and general.
80. …As the Holder’s water builds up in conservation facilities, the potential for further harm to me and other irrigators increases in respect to our carry over entitlements and water security for irrigation. These dams are our “water bank”. Each megalitre removed from the productive use of irrigation and transferred to the non-productive use of environmental flows, removes the farm gate income…
47 It is now necessary to outline the legislative scheme which Mr Lee and Mr Gropler hold responsible for much of their difficulties.
48 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). These States and the Australian Capital Territory are called the Basin States (s 4).
49 As is evident from the previous section of these reasons for judgment, the regulation of access to water for irrigation, including in the Murray-Darling Basin, is governed in significant respects by State legislation.
50 The passing of the Act by the Commonwealth Parliament in 2007 added further elements to the existing State legislative systems for the management of the water resources of the Murray-Darling Basin.
51 The central concept of the Act is the development of the Basin Plan (Pt 2 div 1). Much of the argument in this case focused on the provisions in this Part.
52 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).
53 The Basin Plan must then 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 Sustainable Diversion Limits (SDLs).
54 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).
55 It is convenient to leave discussion of some of the other requirements of the Basin Plan until later in these reasons for judgment when the characterisation of the provisions will be addressed.
56 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).
57 The Basin Plan must be prepared by the Authority and given to the Minister for adoption (s 41).
58 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 the 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)(iv)).
59 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).
60 Part 8 of the 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 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 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)).
Commonwealth Environmental Water Holder
61 Part 6 of the Act is also challenged in this proceeding. It establishes the Commonwealth Environmental Water Holder (s 104). This is a statutory office responsible for managing the water holdings of the Commonwealth (s105(1)). Those holdings must be used for environmental purposes (s105(3)). In support of that function the Commonwealth Environmental Water Holder is given power to buy and sell water, water access rights, water delivery rights, and irrigation rights (s105(2)).
62 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 Act which dealt with two categories of pre-existing State water plans designated as Transitional Water Resource Plans or Interim Water Resource Plans.
63 Transitional Water Resource Plans are water management plans which were in existence under State legislation before 25 January 2007 when the then Prime Minister Howard announced the water policy initiatives which were later enacted in the 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 Regulations (No 1) 2012 and the Water Amendment Regulations (No 2) 2012. 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.
64 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 (s242(1)). They have effect until 31 December 2014 or five years after they were made, whichever is later (s242(3)).
65 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 are subject to any inconsistent provision of a Transitional or Interim Water Resource Plan.
THE BASIN PLAN
66 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.
67 The Basin Plan is a long document which addresses many issues required to be dealt with by the Act. For present purposes the most significant matter addressed by the Basin Plan is the fixing of the SDLs (cl 6.04(2) and (3)). Schedule 2 sets out the SDLs by reference to each of the 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).
68 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.
69 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.
70 As to the date for the implementation of the SDLs there are two important matters. The first is that the Basin Plan provides that the 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 the 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 the SDLs because the SDLs were not to operate until 2019.
71 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.
72 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.
73 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.
74 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.
75 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.
76 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.
77 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)).
78 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.
79 With these matters in mind it is now possible to address the s 99 and s 100 claims.
Introduction
80 The articulation of the s 99 and s 100 claims in the amended statement of claim and in the written and oral submissions lacked careful legal analysis. The submissions seemed to owe more to a desire to expose the problems suffered by Mr Lee and Mr Gropler as a result of the changes in the legislative regime and in government water management policy, than to articulating a legal basis for their problems.
81 The s 100 claim was placed at the forefront of the case of Mr Lee and Mr Gropler. In the most general terms they said that the level of their water entitlements is necessary for them to irrigate their farms. The fixing of the SDLs under Pt 2 of the Act allows for a reduction in the amount of the water, possibly to zero, which they would have available for irrigation. Section 100, they said, does not allow the Commonwealth to make such a law.
82 The case under s 99 focused on the division of the Basin States into water resource plan areas. Again, in the most general terms, this claim asserted that some parts of some States are preferred over other parts of those or other States because, under the transitional provisions, some pre-existing water resource plans cease to have effect later than others, and hence, are subject to the requirements of the Basin Plan later than others. Further, the Act requires that the SDLs be calculated for each water resource plan area but does not provide that the reduction to achieve the Basin SDL must be the same for each area. Thus, some water resource plan areas are preferred over others because the Basin Plan provides for greater relative reductions through SDLs in some areas than in others.
83 The prohibition on Commonwealth legislative power in each of s 99 and s 100 applies only to a law or regulation of trade or commerce (or, in the case of s 99, also of revenue). The Commonwealth and Authority argued that a law or regulation of trade or commerce in these sections refers to a law which was enacted or could have been enacted under s 51(i) of the Constitution, namely, a law with respect to “trade and commerce with other countries, and among the States”. So much was established in Morgan v Commonwealth (1947) 74 CLR 421; [1947] HCA 6 (Morgan). The Commonwealth and the Authority argued that the challenged provisions of the Act were not, and could not have been made under s 51(i) of the Constitution. They were not laws with respect to overseas or interstate trade or commerce.
84 This case 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. The laws were made under the defence power. They could not have been made under the trade and commerce power because they did not apply to overseas or interstate trade.
85 The High Court held that the orders were valid and that section 99 only prohibits the giving of preferences by laws which were or could have been made under s 51(i) of the Constitution. Latham CJ, Dixon, McTiernan and Williams JJ said at 452-3:
(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 inter-State 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.
Under these powers, as well as under the defence power, laws may be passed which affect trade and commerce but which if (as might validly be the case) they applied to intra-State trade and commerce could not have been passed under s. 51 (i). The preferences forbidden by s. 99 are plainly preferences in favour of and against States. They are not preferences in intra-State trade. If s. 99 were construed as applying to all laws affecting trade and commerce passed under any of the powers contained in s. 51, including the defence power, there would be an unexplained gap as to intra-State preferences. But if the expression “law or regulation of trade, commerce” in s. 99 is limited to laws which could be enacted under s. 51 (i), there is no such hiatus in the Constitution.
86 And at 454 their Honours said:
The regulations and Orders the validity of which is challenged in this case are provisions with respect to defence, but they should not be held to be laws or regulations of trade and commerce within the meaning of the words in s. 99, although they produce 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).
87 Their Honours then considered the group of sections from s 98 to s 102 of the Constitution and said at 454:
This view is reinforced by consideration of the context and setting of s. 99 in the Constitution. 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).
[Emphasis added.]
88 Later, their Honours said at 455:
This provision [s 100] 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.
89 And their Honours concluded at 455:
This 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).
The provisions under consideration in these proceedings are not laws which could have been so made. They were made and could be made only under another power, namely the defence power. To such laws s. 99 has no application.
[Emphasis added.]
90 Starke J agreed on the answer to the questions whether each of the prices and rationing orders were laws of trade or commerce within the meaning of s 99. His Honour said at 458:
Both these questions should be answered in the negative because the law or regulation referred to in s. 99 is a law or regulation made by the Commonwealth with respect to trade and commerce with other countries and among the States. The section should be so construed because the legislative power of the Commonwealth is to make laws with respect to trade and commerce with other countries and among the States and because the preference prohibited is of one State or part of a State over another State or part thereof.
91 However, Starke J went on at to differ with the plurality on the question of whether the law had to be a law made or capable of being made under s 51(i) at 458:
But I do not mean that the law must necessarily and upon its face purport to have been made under the power contained in s. 51(i) for it is possible that a law of trade and commerce with respect to inter-State and foreign trade can be made under other legislative powers. It must, however, be a law or regulation of the character described in s. 51(i).
92 In the Commonwealth v Tasmania (1983) 158 CLR 1; [1983] HCA 21 (the Tasmanian Dam Case) the Hydro-Electric Commission argued that Commonwealth regulations which prohibited it from building a dam on the Gordon River in Tasmania were invalid as a result of the operation of s 100 of the Constitution. The Hydro-Electric Commission contended that Morgan should be distinguished. The argument which was put by Mr Merralls QC is recorded 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.]
93 In the present case Mr King contended that Morgan should be distinguished. His argument mirrored the argument put by Mr Merralls QC in the Tasmanian Dam Case.
94 In the Tasmanian Dam Case Mason, Murphy and Brennan JJ applied Morgan. Deane J 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 Honours’ views on the validity of the provisions.
95 Mason J said at 154-5;
Section 98 is of special significance because (1) it provides that Parliament’s power with respect to trade and commerce extends to navigation and shipping; (2) it demonstrates that the references in other sections to a law or regulation of trade and commerce are references to laws which are made, or perhaps can be made, under s. 51(i) as explained by s. 98; and (3) it thereby suggests that 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, viz., the Murray River.
What I have said accords with what was decided in Morgan v. The Commonwealth, where the Court held that the National Security (Rationing) Regulations and certain orders made under the Regulations, though they had an effect in relation to trade and commerce, were not laws or regulations of trade and commerce within the meaning of s. 99 because they could not have been made under s. 51(i) of the Constitution. Latham C.J., Dixon, McTiernan and Williams JJ. left open the question whether a law which might be supported under s. 51(i) and independently under some other power might fall within the prohibition contained in s. 99. On the other hand, Starke J. was disposed to answer the question in the affirmative. For the purposes of the present case, it is unnecessary to answer this question.
At first glance it may seem somewhat artificial to confine the restriction on legislative power to laws made, or capable of being made, in exercise of one power when 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?
The answer to this question probably lies 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. Time does not permit an examination of this aspect of our history. And in any event the legal answer to the question is that we must give preponderant weight to the significance of the expression “law or regulation of trade and commerce” used in ss. 99 and 100 which, as we have seen, confines the prohibition to laws made, or capable of being made, under ss. 51(i) and 98.
[Footnotes omitted.]
[Emphasis added.]
96 Murphy J at 182 applied Morgan, but apparently did not realise that the authority of Morgan was challenged.
97 Brennan J said at 248-9:
The phrase “[a] law or regulation of trade or commerce” is apt to describe a law or regulation in reference to the power that does or could support it, for it is a phrase speaking of a class of laws or regulations identified elsewhere in the Constitution. A law or regulation of trade or commerce is a law supported by s. 51(i) or by s. 51(i) and s. 98 in conjunction. That view is consistent with the opinion of the Court in Morgan v. The Commonwealth. None of the Commonwealth measures is a law or regulation of trade or commerce. It follows that s. 100 contains no impediment to the validity of the Commonwealth measures.
[Footnotes omitted.]
98 And Deane J said in respect of Morgan at 251:
It was submitted on behalf of Tasmania that that decision was wrong and should not be followed. I find it unnecessary to consider that submission, however, since it appears to me to be plain that none of the provisions involved in the present case could properly be described as a “law or regulation of trade or commerce” regardless of whether those words are given the restricted meaning attributed to them in Morgan’s Case. None of the impugned provisions in the present case is, either in character or in legal operation, a law or regulation of international, interstate or intrastate trade or commerce.
99 The authority of Morgan was considered by the New South Wales Court of Appeal in Arnold v Minister Administering the Water Management Act 2000 (2008) 73 NSWLR 196; [2008] NSWCA 338 (Arnold). The holders of bore licences in New South Wales relied on s 100 to challenge the validity of New South Wales and Commonwealth legislative provisions, made pursuant to an arrangement between the governments, which had the effect of reducing their entitlements to groundwater. The Land and Environment Court dismissed the claims summarily on the authority of Morgan. The Court of Appeal upheld the summary dismissal. Spigelman CJ, with whom Allsop P and Handley AJA agreed, said at [89]-[93]:
89 The focus of attention in the present proceedings, for the proposition that the applicants had no prospects of success, was upon the words “by any law or regulation of trade or commerce”. This is a matter that has been authoritatively determined by the High Court in Morgan v Commonwealth (1947) 74 CLR 421 at 455, where the Court decided that, by reason of these words, contained in each of ss 98 to 102 of the Constitution, the restraint on Commonwealth legislative power should be understood as applying only to laws which can be made under the power conferred by s 51(i), ie the trade and commerce power.
90 The applicants do not contend that the laws in question in the present case are capable of answering that description.
91 Mason, Murphy and Brennan JJ accepted the authority of Morgan in Commonwealth v Tasmania (1983) 158 CLR 1 at 153-154, 182, 248-249. The applicants relied upon a statement by Deane J in that case at 251 suggesting that there may be occasion for the High Court to reconsider the clear statement in Morgan. Deane J found that issue unnecessary to decide, because the legislation under consideration did not answer the description of a “law or regulation of trade or commerce”. The applicants relied on the fact that there was no majority in favour of affirming Morgan: see also Permanent Trustee Australia Ltd v Commissioner of State Revenue (Victoria) (2004) 220 CLR 388 at 425 [96].
92 However, this Court is bound by Morgan and the propositions based on s 100 for which the applicants contend cannot be accepted. Accordingly, none of the agreements or legislation challenged offend the prohibition in s 100 of the Constitution.
93 In any event, the conclusion of Deane J is also applicable. No statute or agreement relied upon by the applicants can be characterised as a “law or regulation of trade or commerce”. The objective of ensuring sustainable yield in national water resources is not of that character.
100 On appeal, in Arnold v Minister Administering the Water Management Act 2000 (2010) 240 CLR 242; [2010] HCA 3, French CJ at [29], Gummow and Crennan JJ at [55] and Hayne, Kiefel and Bell JJ at [75] agreed that s 100 did not apply. However, this was for the reason, not argued in the Court of Appeal, that rights to groundwater were not rights to “waters of rivers” as required by s 100. Consequently, French CJ at [23], Gummow and Crennan JJ at [53], and Hayne, Kiefel and Bell JJ at [76] held that it was not necessary to consider the correctness of Morgan. Mr King relied on a passage from the judgment of French CJ at [23] as follows:
However, the invitation to overrule Morgan should be declined for present purposes. This case does not require that its correctness be re-examined, although the artificiality of its consequences, to which Mason J adverted in the Tasmanian Dam Case, remains.
[Footnotes omitted.]
101 Morgan is binding authority which directly applies to the present s 99 claim. Even if the references to s 100 in Morgan were obiter, they were applied to a s 100 claim in the Tasmanian Dam Case in the face of the same arguments now relied upon. Further, those references were applied by the New South Wales Court of Appeal in Arnold. Any departure from Morgan is a matter for the High Court.
102 The question then arises whether the Act, or the challenged parts, were or could have been made under the trade and commerce power. In other words, are those provisions properly characterised as laws with respect to trade and commerce with other countries and among the States.
103 Mr King submitted that, if Morgan applied, then the Act or the provisions challenged were laws which were or could have been made under s 51(i) of the Constitution.
104 Dr Donaghue SC, who appeared with Mr Lenehan for the Commonwealth and the Authority, contended that neither the Act nor the provisions challenged were or could have been made under s 51(i) of the Constitution.
105 In the amended statement of claim, the s 99 claim was directed against the whole of the Act or alternatively Pts 2, 8, 11 and Sch 4 of the Act.
106 In the amended statement of claim, the s 100 claim was directed against Pt 2 and Pt 6, or alternatively ss 19(2), 22(items 6, 7 and 8), 23 and 24 of the Act.
107 In his oral submissions Mr King focused on the alleged invalidity of the SDL regime, the provisions by which it is enforced, the role of the Commonwealth Environmental Water Holder, and the water trading rules rather than on the whole of the Act.
108 In order to determine this issue it is necessary to examine the provisions of the Act in more detail.
109 Section 3 provides that the objects of the Act are:
(a) to enable the Commonwealth, in conjunction with the Basin States, to manage the Basin water resources in the national interest; and
(b) to give effect to relevant international agreements (to the extent to which those agreements are relevant to the use and management of the Basin water resources) and, in particular, to provide for special measures, in accordance with those agreements, to address the threats to the Basin water resources; and
(c) in giving effect to those agreements, to promote the use and management of the Basin water resources in a way that optimises economic, social and environmental outcomes; and
(d) without limiting paragraph (b) or (c):
(i) to ensure the return to environmentally sustainable levels of extraction for water resources that are overallocated or overused; and
(ii) to protect, restore and provide for the ecological values and ecosystem services of the Murray-Darling Basin (taking into account, in particular, the impact that the taking of water has on the watercourses, lakes, wetlands, ground water and water-dependent ecosystems that are part of the Basin water resources and on associated biodiversity); and
(iii) subject to subparagraphs (i) and (ii)–to maximise the net economic returns to the Australian community from the use and management of the Basin water resources; and
(e) to improve water security for all uses of Basin water resources; and
(f) to ensure that the management of the Basin water resources takes into account the broader management of natural resources in the Murray-Darling Basin; and
(g) to achieve efficient and cost effective water management and administrative practices in relation to Basin water resources; and
(h) to provide for the collection, collation, analysis and dissemination of information about:
(i) Australia’s water resources; and
(ii) the use and management of water in Australia.
[Emphasis added.]
110 The major focus of challenge by Mr Lee and Mr Gropler was the specification of the SDLs in the Basin Plan. The purpose of the Basin Plan (s 20) is:
…to provide for the integrated management of the Basin water resources in a way that promotes the objects of this Act, in particular by providing for:
(a) giving effect to relevant international agreements (to the extent to which those agreements are relevant to the use and management of the Basin water resources); and
(b) the establishment and enforcement of environmentally sustainable limits on the quantities of surface water and ground water that may be taken from the Basin water resources (including by interception activities); and
(c) Basin-wide environmental objectives for water-dependent ecosystems of the Murray-Darling Basin and water quality and salinity objectives; and
(d) the use and management of the Basin water resources in a way that optimises economic, social and environmental outcomes; and
(e) water to reach its most productive use through the development of an efficient water trading regime across the Murray-Darling Basin; and
(f) requirements that a water resource plan for a water resource plan area must meet if it is to be accredited or adopted under Division 2; and
(g) improved water security for all uses of Basin water resources.
[Emphasis added.]
111 “Relevant international agreements” are defined (s 4) as eight specified conventions, all of which deal with protection of the environment, and prescribed conventions relevant to use and management of water resources.
112 The basis on which the Basin Plan must be developed is relevantly specified (s 21) as follows:
(1) The Basin Plan (including any environmental watering plan or water quality and salinity management plan included in the Basin Plan) must be prepared so as to provide for giving effect to relevant international agreements (to the extent to which those agreements are relevant to the use and management of the Basin water resources).
(2) Without limiting subsection (1), the Basin Plan must:
(a) be prepared having regard to:
(i) the fact that the use of the Basin water resources has had, and is likely to have, significant adverse impacts on the conservation and sustainable use of biodiversity; and
(ii) the fact that the Basin water resources require, as a result, special measures to manage their use to conserve biodiversity; and
(b) promote sustainable use of the Basin water resources to protect and restore the ecosystems, natural habitats and species that are reliant on the Basin water resources and to conserve biodiversity.
(3) Without limiting subsection (1), the Basin Plan must also:
(a) promote the wise use of all the Basin water resources; and
(b) promote the conservation of declared Ramsar wetlands in the Murray-Darling Basin; and
(c) take account of the ecological character descriptions of:
(i) all declared Ramsar wetlands within the Murray-Darling Basin; and
(ii) all other key environmental sites within the Murray-Darling Basin;
prepared in accordance with the National Framework and Guidance for Describing the Ecological Character of Australia’s Ramsar Wetlands endorsed by the Natural Resource Management Ministerial Council.
Basis on which Basin Plan to be developed
(4) Subject to subsections (1), (2) and (3), the Authority and the Minister must, in exercising their powers and performing their functions under this Division:
(a) take into account the principles of ecologically sustainable development;
…
Basin Plan not to reduce protection of planned environmental water provided for under existing State water management laws
(5) The Basin Plan must ensure that there is no net reduction in the protection of planned environmental water from the protection provided for under the State water management law of a Basin State immediately before the Basin Plan first takes effect.
[Emphasis added.]
113 The Basin Plan must set out the management objectives and outcomes to be achieved (s 22(1)(item 4)), and must address:
(a) environmental outcomes; and
(b) water quality and salinity; and
(c) long-term average sustainable diversion limits and temporary diversion limits; and
(d) trading in water access rights.
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 relevantly provides:
(1) A long-term average sustainable diversion limit must reflect an environmentally sustainable level of take.
115 “Environmentally sustainable level of take for a water resource” means (s 4):
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.
116 The Basin Plan must include a water quality and salinity management plan (s 22(1)(item 10)). 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 and targets for the Murray-Darling water resources (s 25(1)(b)).
117 The water resource plans for water resource plan areas, in addition to incorporating the SDL for the area (s 22(3)(b)), must include requirements in relation to (s22(3)):
(c) the sustainable use and management of the water resources of the water resource plan area within that diversion limit; and
…
(e) planning for environmental watering; and
(f) water quality and salinity objectives for the water resource plan area;
118 The functions of the Commonwealth Environmental Water Holder have been referred to previously. The purpose which is to govern the performance of those functions (s 105(3) and (4)) is:
(3) … protecting or restoring the environmental assets of:
(a) the Murray-Darling Basin; and
(b) other areas outside the Murray-Darling Basin where the Commonwealth holds water;
so as to give effect to relevant international agreements.
(4) Without limiting subsection (3), the Commonwealth Environmental Water Holder must manage the Commonwealth environmental water holdings in accordance with:
(a) to the extent that the Commonwealth environmental water holdings relate to water in the Murray-Darling Basin—the environmental watering plan; and
(b) to the extent that the Commonwealth environmental water holdings relate to water in an area outside the Murray-Darling Basin—the plan (if any) that:
(i) relates to environmental watering in that area; and
(ii) is specified, in relation to that area, in the regulations; and
(c) any operating rules that the Minister has made under section 109; and
(d) any environmental watering schedules to which the Commonwealth Environmental Water Holder is a party.
119 The power of the Commonwealth Environmental Water Holder to dispose of its water holdings is strictly governed by environmental considerations as follows (s 106):
(1) The Commonwealth Environmental Water Holder must not dispose of water and Commonwealth environmental water holdings during a water accounting period unless the water or the water holdings:
(a) are not required in the water accounting period to meet the objectives of:
(i) if the water is in, or the water holdings relate to water in, the Murray-Darling Basin—the environmental watering plan; or
(ii) if the water is in, or the water holdings relate to water in, an area outside the Murray-Darling Basin—any plans specified in the regulations in relation to that area; or
(iii) any applicable environmental watering schedules; and
(b) cannot be carried over into the next water accounting period.
(2) However, this section does not apply to a disposal of water or Commonwealth environmental water holdings if water or Commonwealth environmental water holdings acquired with the proceeds of the disposal will improve the capacity of the Commonwealth environmental water holdings to be applied to meet the objectives of one or more of the following:
(a) the environmental watering plan;
(b) a plan specified in the regulations in relation to an area outside the Murray-Darling Basin;
(c) protecting or restoring the environmental assets of an area outside the Murray-Darling Basin in relation to which those regulations do not specify a plan.
120 The Minister is given power to make rules for the Basin water market. The rules must contribute to achieving the Basin water market and trading objectives and principles. The objectives are (Sch 3, cl 3):
(a) to facilitate the operation of efficient water markets and the opportunities for trading, within and between Basin States, where water resources are physically shared or hydrologic connections and water supply considerations will permit water trading; and
(b) to minimise transaction cost on water trades, including through good information flows in the market and compatible entitlement, registry, regulatory and other arrangements across jurisdictions; and
(c) to enable the appropriate mix of water products to develop based on water access entitlements which can be traded either in whole or in part, and either temporarily or permanently, or through lease arrangements or other trading options that may evolve over time; and
(d) to recognise and protect the needs of the environment; and
(e) to provide appropriate protection of third party interests.
[Emphasis added.]
121 The Basin water market and trading principles are (Sch 3, cl 4):
(2) Water access entitlements may be traded either permanently, through lease arrangements, or through other trading options that may evolve over time, if water resources are physically shared or hydrologic connections and water supply considerations would permit water trading.
(3) All trades should be recorded on a water register. Registers will be compatible, publicly accessible and reliable, recording information on a whole of catchment basis, consistent with the National Water Initiative.
(4) Restrictions on extraction, diversion or use of water resulting from trade can only be used to manage:
(a) environmental impacts, including impacts on ecosystems that depend on underground water; or
(b) hydrological, water quality and hydro-geological impacts; or
(c) delivery constraints; or
(d) impacts on geographical features (such as river and aquifer integrity); or
(e) features of major indigenous, cultural heritage or spiritual significance.
(5) A trade may be refused on the basis that it is inconsistent with the relevant water resource plan.
(6) Trades must not result in the long-term annual diversion limit being exceeded. That is, trades must not:
(a) cause an increase in commitments to take water from water resources or parts of water resources; or
(b) increase seasonal reversals in flow regimes;
above sustainable levels identified in relevant water resource plans such that environmental water or water dependent ecosystems are adversely affected.
(7) Trades within overallocated water resources (including ground water resources) may be permitted in some cases subject to conditions to manage long-term impacts on the environment and other users.
(8) Where necessary, water authorities will facilitate trade by specifying trading zones and providing related information such as the exchange rates to be applied to trades in water allocations to:
(a) adjust for the effects of the transfer on hydrology or supply security (transmission losses) or reliability; and
(b) reflect transfers between different classes of water resources, unregulated streams, regulated streams, supplemented streams, ground water systems and licensed runoff harvesting dams.
(9) Water trading zones, including ground water trading zones, should be defined in terms of:
(a) the ability to change the point of extraction of the water from one place to another; and
(b) the protection of the environment.
The volume of delivery losses in supplemented systems that provide opportunistic environmental flows will be estimated and taken into account when determining the maximum volume of water that may be traded out of a trading zone.
(10) Exchange rates must not be used to achieve other outcomes such as to alter the balance between economic use and environmental protection or to reduce overall water use.
(11) Trade in water allocations may occur within common aquifers or surface water flow systems consistent with water resource plans.
(12) Trade from a licensed runoff harvesting dam (that is, not a small farm dam) to a river may occur subject to:
(a) a reduction in dam capacity consistent with the transferred water access entitlement; or
(b) retention of sufficient capacity to accommodate evaporative and infiltration losses; or
(c) conditions specified in water resource plans to protect the environment.
(13) Compatible institutional and regulatory arrangements will be pursued to improve intrastate and interstate trade, and to manage differences in entitlement reliability, supply losses, supply source constraints, trading between systems and cap requirements.
(14) The transfer of water allocations and entitlements will be facilitated (where appropriate) by water access entitlement tagging, water access entitlement exchange rates or other trading mechanisms that may evolve over time.
(15) Institutional, legislative and administrative arrangements will be introduced to improve the efficiency and scope of water trade and to remove barriers that may affect potential trade.
(16) Barriers to permanent trade out of water irrigation areas up to an annual threshold limit of 4% of the total water entitlement of that area will be immediately removed, subject to a review by 2009 by the National Water Commission under paragraph 7(2)(h) of the National Water Commission Act 2004, with a move to full and open trade by 2014 at the latest.
(17) Subject to this clause, no new barriers to trade will be imposed, including in the form of arrangements for addressing stranded assets.
[Emphasis added.]
122 The provisions establishing the SDLs, imposing the obligation to comply with the SDLs, the enforcement of the SDLs, and the role of the Commonwealth Environmental Water Holder are all concerned with the protection of the environment of the Murray-Darling Basin. They implement obligations found in the international agreements referred to in the Act which are concerned with environmental protection. They are an exercise of the power to legislate in respect of the external affairs (s 51(xxix) of the Constitution).
123 These provisions constitute the primary elements of the Act. Hence, viewed as a whole the Act bears the character of a law with respect to external affairs. At that level of generality it is not a law with respect to trade and commerce.
124 The same conclusion applies to Pts 2, 6, 8 and 11 which were also challenged separately. Each of those Parts is a law with respect to external affairs, and is not a law with respect to trade and commerce at all.
125 The individual sections challenged, namely ss 19(2), 22(1) (items 6, 7 and 8), 23 and 24, deal with the establishment of the SDLs. They are concerned with environmental protection. They implement terms of international agreements on that subject. They are not laws with respect to trade or commerce.
126 Furthermore, even if the challenged provisions were laws with respect to trade and commerce, they were not and could not have been made under s 51(i) of the Constitution. Section 51(i) is a legislative power limited to laws with respect to trade and commerce with other countries and among the States. It does not permit the Commonwealth Parliament to make laws with respect to intrastate trade and commerce. The challenged provisions are not limited to interstate or overseas trade. They deal with water resource management within and between Basin States without differentiation.
127 The Commonwealth and the Authority accepted that some sections of the Act might be supported by s 51(i) of the Constitution. Section 9(a) expressly provides that the Act (save for some presently irrelevant exceptions) relies on:
the Commonwealth’s legislative powers under paragraphs 51(i), (v), (viii), (xi), (xv), (xx), (xxix) and (xxxix), and section 122, of the Constitution.
128 An example of a section which might have been enacted under s 51(i) is s 22(1)(item 12) which requires the Basin Plan to include rules for the trading of tradeable water rights in relation to basin water resources. However, as the Commonwealth and the Authority pointed out, this provision was not separately challenged by Mr Lee and Mr Gropler.
129 A further example of a section which might have been enacted under s 51(i) is s 35 of the Act, which provides for the obligation to comply with the Basin Plan. Section 36(3) of the Act provides that the obligation in s 35 is imposed to the extent to which it is imposed in relation to interstate trade or commerce, or trade or commerce with other countries. This section is not separately challenged by Mr Lee and Mr Gropler.
130 A further impediment to the s 99 and s 100 claims lies in the reading down provisions in s 11(1), (3) and (5) which provide:
(1) If:
(a) the operation of a provision of this Act, or of regulations or another instrument made under this Act, in reliance on the Commonwealth’s legislative powers under paragraph 51(i) or (xx) of the Constitution would be invalid because of section 99 or 100 of the Constitution; and
(b) the operation of that provision in reliance on another legislative power, or other legislative powers, of the Commonwealth would not be invalid because of section 99 or 100 of the Constitution;
it is the intention of the Parliament that the provision operate in reliance on the legislative power or powers referred to in paragraph (b).
…
(3) If:
(a) a provision of this Act, or of regulations or another instrument made under this Act, operates in relation to trade or commerce; and
(b) the operation of the provision is invalid, under section 99 or 100 of the Constitution, in relation to trade or commerce between the States;
it is the intention of the Parliament that the provision operate in relation to trade or commerce within the States.
…
(5) This section does not affect the operation of section 15A of the Acts Interpretation Act 1901 in relation to the provisions of this Act or the regulations or other instruments made under this Act.
131 Even if s 99 and/or s 100 applied, s 11(1), (3) and (5) require that the challenged provisions be read down so as not to infringe these sections. The Commonwealth and the Authority submitted that s 11 is a complete answer to the claims because no relevant prayer for relief is advanced in respect of that possibility. Mr King answered that “it is not legislatively possible for the Commonwealth to restrict a constitutional protection in this fashion”. That response relies on treating s 11 as stipulating a binding characterisation of the legislation. Parliament may not do that, but the section does not attempt such an exercise. The section signals that Parliament intends that the provisions of the Act are severable and are to be valid insofar as they are supported by constitutional authority.
132 As explained, the external affairs power is the obvious constitutional basis for the making of Pt 2 of the Act, and of the associated enforcement (Pt 8) and transitional provisions (Pt 11). In view of the clear link between these challenged provisions and s 51(xxix), it was difficult for Mr King to sustain his argument that the challenged provisions were an exercise of the trade and commerce power. Nonetheless, several of his arguments should be mentioned.
133 Mr King contended that s 9(a), which is set out in [127], demonstrated that the Act and the challenged provisions rely on s 51(i) of the Constitution. The section provides that the Act, excluding some parts not relevant to this proceeding, relies on the Commonwealth’s legislative powers under s 51(i), (v), (viii), (xi), (xv), (xx), (xxix) and (xxxix) and s 122 of the Constitution. This argument, it should be said, barely deserves an answer. The section does not mean that every specific power is used to support every section of the Act. It is necessary to characterise the particular challenged provision to establish which power has been utilised for the purpose of enacting that section. The fact that s 51(i) is the warrant for some parts of the Act does not mean that it is the source for all provisions of the Act. The process of characterisation undertaken earlier in these reasons for judgment demonstrates that s 51(i) is not the source of power for most of the challenged sections.
134 Then, Mr King argued that there was a commercial element in the challenged provisions. This is seen in the object of the Act stated in s 3(d)(iii) to maximise the net economic returns to the Australian community from the use and management of the Basin water resources. That object is carried through to the purpose of the Basin Plan which must provide for “water to reach its most productive use through the development of an efficient water trading regime across the Murray-Darling Basin” (s 20(e)).
135 These provisions must, however, be read in their totality. The object in s 3(d)(iii) is subject to the objects in s 3(d)(i) and (ii) which are, to ensure the return to environmentally sustainable levels of extraction for water resources that are overallocated or overused (s 3(d)(i)), and to protect, restore, and provide for the ecological values and ecosystem services of the Murray-Darling Basin (taking into account, in particular, the impact that the taking of water has on the watercourses, lakes, wetlands, ground water and water dependent ecosystems that are part of the Basin water resources and on associated biodiversity) (s 3(d)(ii)). Further, the development of a water trading system provided for in s 20(e) is described by the opening words of s 20 as a means of providing “for the integrated management of the Basin water resources in a way that promotes the objects of this Act”.
136 This argument depends on a selective and incomplete reading of the provisions. The objects of the Act have been referred to earlier in these reasons for judgment and they focus on giving effect to international agreements concerned with environmental protection. The obvious constitutional basis of the Act as a whole, and most of its provisions read separately, is the external affairs power.
137 Next is Mr King’s regulated rivers argument. He said that the rivers of the Murray-Darling Basin and, particularly the Murray River, constitute a grand canal serving the irrigation needs of farmers along its course. The waters are regulated so that waters in one State are released for use in another. The farmers are engaged in trade and commerce and the river serves that trade and commerce. That trade and commerce has an interstate character because the waters used on many farms traverse more than one State.
138 Dr Donaghue accepted that the use of the rivers is regulated by State laws to provide for irrigation by farmers. But he rightly argued that it does not follow that the provisions which limit the use of the water resources in order to serve environmental purposes, even if they have an effect on trade and commerce, are laws with respect to trade and commerce among the States or with overseas countries.
139 Then, Mr King submitted that the National Water Initiative was a regime of trade and commerce among the States and was picked up by the Act, thereby giving the Act its proper characterisation as a law with respect to trade and commerce among the States.
140 The National Water Initiative was an intergovernmental agreement made in 2004 between the Commonwealth and the governments of New South Wales, Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory. It was part of an ongoing process intended to address issues of water resource management including regulating water trading and reversing the effects of overallocation to protect the environment. Whether the National Water Initiative is properly described as a regulation of trade and commerce among the States as a matter of constitutional characterisation is open to debate. But the short answer to the contention is that the reference in the Act to the National Water Initiative is a long way short of implementing or adopting the National Water Initiative. The source of the argument lies in the terms of s 21(4)(c) which provides that the Minister and the Authority must, in exercising their functions in relation to the Basin Plan under Pt 2 Div 1, have regard to the National Water Initiative. However, s 21(4)(c) contains nine other matters to which regard must also be had. It is preceded by s 21(4)(a) and (b) which require the Minister and the Authority to take into account the principles of ecologically sustainable development and to act on the basis of the best available scientific and socio-economic analysis. When considered in this context, s 21(4)(c) does not adopt the National Water Initiative in such a way as to provide the Act with the character as a law enacted under the trade and commerce power.
141 Finally, Mr King argued that the s 99 and s 100 claims should not be dismissed under s 31A of the Federal Court Act because further evidence was required to establish the claims. It is inappropriate to apply s 31A to circumstances where complex questions of fact require resolution. Mr King said that a water use and water conservation expert would need to give evidence about the reasonable use of the waters of the rivers. Another expert would need to give evidence about socioeconomic impacts of the Act. A basin and regulated rivers water planning expert would need to give evidence about the operation of the Act and the Basin Plan. And, Mr King said, there would be a need for banking evidence and expert evidence about how the Basin water market works.
142 However, such evidence would not avail Mr Lee and Mr Gropler unless they were able to overcome the obstacles of Morgan and the characterisation of the Act and the challenged provisions. The s 99 and s 100 claims fall within the category of cases described by French CJ and Gummow J in Spencer, where success on the claims is critically dependent on a proposition of law which would contradict a binding judgment of the High Court. In such a case, their Honours said, the Court may justifiably conclude that the claims have no reasonable prospect of success.
143 After the hearing concluded, Mr Lee and Mr Gropler wished to rely on evidence that the Commonwealth Environmental Water Holder in January 2014 decided for the first time to sell a small temporary allocation of water from the Gwydir Valley in northern New South Wales which was not required for environmental purposes, and that the Commonwealth Environmental Water Holder had adopted a Trading Framework to govern its trading function (the post-hearing evidence). As the Commonwealth and the Authority did not object to the reception of this evidence, it has been received and taken into account. No argument was directed to the significance of the evidence to the submissions made. However, it was indicated that the post-hearing evidence was relevant in part to the s 99 and s 100 claims. In view of the legal obstacles explained above, the evidence does not assist Mr Lee and Mr Gropler in those claims.
144 It follows from this discussion that neither the Act as a whole, nor the challenged provisions taken separately, are 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. Consequently, on the authority of Morgan, s 99 and s 100 do not render the Act or the provisions invalid.
145 Mr Lee and Mr Gropler do not have a reasonable prospect of successfully prosecuting the claims under s 99 and s 100 of the Constitution and judgment under s 31A should be given in favour of the Commonwealth and the Authority in respect of these claims.
THE S 92 CLAIM
146 The scope of the protection provided by s 92 was explained in Cole v Whitfield (1988) 165 CLR 360 at 394; [1988] HCA 18 at [25] by Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudon JJ) thus:
The history of s.92 points to the elimination of protection as the object of s.92 in its application to trade and commerce. The means by which that object is achieved is the prohibition of measures which burden interstate trade and commerce and which also have the effect of conferring protection on intrastate trade and commerce of the same kind. The general hallmark of measures which contravene s.92 in this way is their effect as discriminatory against interstate trade and commerce in that protectionist sense.
147 The original statement of claim was filed in the High Court on 31 October 2012. In her affidavit, Ms Nance explained that on 30 January 2013, prior to the first directions hearing held in this Court, the solicitors for the Commonwealth and the Authority wrote to the solicitors for Mr Lee and Mr Gropler informing them that the pleading of the claims, including the s 92 claim, was unclear. In ten paragraphs over two pages the solicitors detailed fundamental deficiencies in the s 92 pleading, and provided reference to authorities to support their comments. In essence they said that in order to establish a claim under s 92 it is first necessary to identify a relevant market. They referred to Betfair Pty Ltd v WA (2008) 234 CLR 418; [2008] HCA 11, at 452 [15]. Then, they said, it is necessary to show that there is discrimination against the interstate portion of the market to the competitive advantage of the intrastate portion of the market. They referred to Betfair Pty Ltd v Racing New South Wales (2012) 86 ALJR 418; [2012] HCA 12, at 429 [52]). They invited Mr Lee and Mr Gropler to amend the statement of claim to provide some clarity for the basis of the s 92 claim.
148 Mr Lee and Mr Gropler did not amend the statement of claim in the manner suggested by the Commonwealth and the Authority. On 31 May 2013, the Commonwealth and the Authority then filed written submissions which repeated the alleged deficiencies in the s 92 claim.
149 The written submissions of Mr Lee and Mr Gropler in response filed on 18 June 2013 dealt with the matter in one paragraph as follows:
55. Whether the Act restricts trade or commerce or intercourse among the States by the merger of state markets into one Basin market and their eventual abolition by operation of the law is arguable. Likewise the dominant role of the CEWH [Commonwealth Environmental Water Holder] in influencing relevant markets is arguable.
150 On 25 June 2013, the first day of the hearing, Dr Donaghue then reiterated the arguments in oral submissions. When Mr King came to make his oral submissions on 26 June 2013, it was clear from those submissions that the s 92 claim was not properly articulated in the pleading. Further, Mr King was not able to explain the way in which the claim was advanced in a way which engaged with s 92. Mr King in effect accepted that this was so and sought leave to amend the s 92 claim. In the course of the adjourned hearing, on 5 July 2013, the proposed amended statement of claim was filed. It contained a proposed amendment which deleted much of [45] and all of [46], and then added a new [47A] and [47B]. It is implicit in the way the argument was conducted that if the application to amend were to be refused, the s 92 claim could not be sustained.
151 The proposed amended [45] relevantly provides:
45. 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.
152 It is not easy to understand this pleading as raising a case that the Act is invalid as infringing s 92 of the Constitution. The gist of the allegation seems to be contained in the final two particulars. They are directed to the fixing of the SDLs which is one of the main targets of the challenge mounted by Mr Lee and Mr Gropler. The basis of the complaint seems to be that the SDLs vary from one water resource plan area to another.
153 These variations do exist. But for s 92 to invalidate a provision there must be a burden which discriminates against interstate trade and confers protection on intrastate trade. The provisions concerning the fixing of the SDLs exhibit none of these features.
154 First, the fixing of the SDLs is not directed to trade and commerce at all. It is a mechanism designed to ensure protection of the environment of the Murray-Darling Basin by ensuring sufficient water is available in the system for environmental watering. Second, the fixing of the SDLs does not discriminate against interstate trade. The SDLs are fixed by reference to environmental water needs not by reference to any interstate character or factor. Further, the SDLs are not fixed by reference to the geographical area of States, but rather by reference to irrigation areas specified for administrative purposes under State legislation. Finally, the fixing of the SDLs does not operate in a way which protects intrastate trade. It operates without discrimination between interstate or intrastate trade.
155 The Commonwealth and the Authority extracted from the proposed amended [45] of the proposed amended statement of claim a separate allegation that the Act discriminated against interstate trade by abolishing the previous State water markets and establishing a new common Basin wide market.
156 This is a very generous reading of the proposed amendment of [45]. But even if that reading is adopted, the case made is no more sustainable than the case made by the more limited reading of the scope of the proposed amended [45] just dealt with in these reasons for judgment.
157 The Commonwealth and the Authority rightly argued that the starting point of the contention could not be made out. The Act does not create a new Basin wide market. It accepts the continuation of the existing State markets and seeks to “facilitate the operation of efficient water markets and the opportunities for trading, within and between Basin States” (Sch 3 cl 3(a)).
158 The Commonwealth and the Authority also correctly argued that for Mr Lee and Mr Gropler to succeed, they had to show that the Act discriminated against interstate trade in a protectionist way. They could not show this because the Act treats interstate trade in water no differently than intrastate trade in water. Insofar as the Act deals with trade in tradeable water rights it does so in exactly the same way.
159 As the claim proposed in the amendment is bound to fail, the proposed amendment of [45] should be refused.
160 Paragraph [47A] of the proposed amended statement of claim states:
47A. 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.
161 The essence of the complaint made in this pleading lies in the particulars II and III as further explained by Mr King, by which it is alleged that Victorian and New South Wales laws impose a limit on the annual amount of water entitlements which may be sold from those States. It is pleaded that those limitations are discriminatory and protectionist. Then it is said that the transitional provisions of the Act continue those restrictions in force for the period of transition. As a result, the transitional provisions are discriminatory and protectionist, and invalid as infringing s 92 of the Constitution.
162 There are a number of inadequacies in the proposed amended pleading. First, although the particular vice of the Act is said to lie in the transitional provisions, the application does not challenge Pt 11 in which the transitional provisions are found. Second, at the time of the hearing no notice under s 78B of the Judiciary Act had been given in relation to this challenge. Third, the pleading does not explain the link between the restrictions found in State laws and the way in which the Act picks up the restrictions. This is important because, as explained in [64] of these reasons for judgment, the transitional provisions only pick up State water resource plans made before 24 November 2012 when the Basin Plan commenced operation.
163 These inadequacies in the proposed amendment are curable. In the case of the notice under s 78B of the Judiciary Act, it appears that the Commonwealth filed a Notice pursuant to that section in respect of the proposed amended statement of claim in November 2013, following the hearing.
164 But two further matters are fundamental to the claim itself and doom it to failure. First, if the restrictions on trading contravene s 92, then their source is in State law not in the Act. The challenge based on s 92 would properly be brought against the State laws. If they were invalid, the Act would not be effective to implement them, but the Act could not itself contravene s 92. And second, the New South Wales limitation was imposed in 2013 and could not have been part of a Transitional Water Resource Plan or an Interim Water Resource Plan as defined in s 241 of the Act. The Act therefore is not the source of that restriction.
165 Thus, the proposed amendment of [47A] should be refused on the basis that the claim directed against the Act could not succeed because the source of any infringement of s 92 lies in State laws. Alternatively, that part of the claim which relies on the New South Wales restriction could not succeed because the restriction is not picked up by the Act.
166 In any event, the amendment should be refused on discretionary grounds. The pleading lacks sufficient clarity. The application to amend was made in the course of the hearing, just before the last hearing day in July 2013. Over the previous six months the Commonwealth and the Authority had extended several invitations to Mr Lee and Mr Gropler to amend the claims. Ms Nance annexed to her affidavit three letters dated 25 January, 30 January and 20 March 2013 sent to the solicitors for Mr Lee and Mr Gropler. These letters included detailed explanations of the inadequacies of the way in which the claim was pleaded. The failure to produce a comprehensible formulation of the claim in this context leads to the conclusion that no such claim can be made. Another discretionary factor is that the challenge is of limited significance because cl 12.17 of the Basin Plan prohibits restrictions on the sale of water entitlements. The prohibition commences operation on 1 July 2014, although the Victorian restriction will apply until December 2014 by operation of s 245(2) of the Act. A successful challenge would have effect only for several months. There is no evidence that any harm is anticipated in that period. No injustice is done by refusing the application to amend by adding the proposed [47A].
167 Paragraph [47B] of the proposed amended statement of claim reads as follows:
47B. 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.
III. 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.
168 The gist of this proposed amendment is that the role of the Commonwealth Environmental Water Holder under the Act burdens freedom of interstate trade. The first thing to observe is that the proposed paragraph does not allege the necessary elements for a claim which relies on s 92, namely, that the burden on the freedom of interstate trade discriminates against interstate trade in a protectionist way. The central allegation seems to be that the role of the Commonwealth Environmental Water Holder places a burden on the freedom of trade of market participants.
169 Further, the allegation is at odds with the provisions of Pt 6. That Part gives the Commonwealth Environmental Water Holder the function of managing the Commonwealth environmental water holdings (s 105). The management function is for the purpose of protecting and restoring the environment of the Murray-Darling Basin (s 105(3)). The Commonwealth Environmental Water Holder may dispose of the water holdings but only if they are not required for environmental purposes (s 106). Although the Commonwealth Environmental Water Holder is given the power to trade in water entitlements, that power is limited to the purpose of addressing the environmental needs of the Murray-Darling Basin. It does not discriminate between interstate and intrastate trade. The provisions do not operate to protect intrastate trade over interstate trade.
170 It was urged that the post-hearing evidence supported this claim. However, the Trading Framework, not surprisingly, reflects the legislative function as follows:
The primary role of the CEWO [Commonwealth Environmental Water Office] is the delivery of Commonwealth environmental water. To ensure maximum environmental outcomes are achieved with the available water, the Commonwealth environmental water portfolio is actively managed. At any point in time, the options for managing water include delivery to environmental assets within the current year; carrying over water to future years by leaving it in storage (where possible); or trading. The CEWH expects to deliver the majority of its available water to the environment each year. This is reflected by the fact that since Commonwealth environmental water became available for use, over 2,505 GL has been used across the Basin to the end of the 2012-2013 water year, representing 84 percent use of total available water. Each year the balance has been carried over for use in future years, in particular early in the next water year before most of the new allocations are available (less than 1 GL has been forfeited because it could not be used or carried over).
171 Paragraph III of the particulars of the proposed amendment to [47B] alleges that the Commonwealth Environmental Water Holder was responsible for imposing conditions on the purchase of water entitlements. However, the uncontradicted evidence is that water entitlements which have been purchased have been purchased by the Commonwealth. The Commonwealth Environmental Water Holder did not purchase the entitlements. He holds and manages water holdings owned by the Commonwealth. The Commonwealth purchased water entitlements under a power in the Financial Management and Accountability Act 1997 (Cth) and not under any power in the Act.
172 The Act does not confer on the Commonwealth Environmental Water Holder a dominant position in the market. Mr Papps, the Commonwealth Environmental Water Holder, denied in cross examination that he had such a position in fact. This evidence was not contradicted.
173 The proposed amended [47B] does not plead a s 92 claim which could succeed, and hence, it would be futile to allow the amendment.
174 Generous opportunities have been given to Mr Lee and Mr Gropler to raise a sustainable case under s 92 if one is available, and they have not been able to define that case. The only reasonable conclusion is that no such claim is available. There is therefore no basis to allow Mr Lee and Mr Gropler to re-plead this claim in the form of the proposed amended statement of claim.
THE MELBOURNE CORPORATION CLAIM
175 The essence of this claim is pleaded in [49] of the amended statement of claim as follows:
49. The Act is a general law that by operation of the planning powers and requirements thereof prevents each Basin State exercising and continuing to exercise basal State constitutional functions with respect to land and water within State power including the making and management of State water management areas and water sharing and other plans for such areas by the process of accreditation and adoption of state water plans, and the control and management of water resources of the State, and has resumed or dictated the direction of the water rights of the States in respect of a traditional area of State responsibility including the control use and flow of water and the State’s water rights in each Basin State.
176 The articulation of the Melbourne Corporation principle has undergone some modification in recent times: Austin v Commonwealth (2003) 215 CLR 185; [2003] HCA 3; Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272; [2009] HCA 33.
177 The most recent guidance comes from Fortescue Metals Group Limited v Commonwealth (2013) 300 ALR 26; [2013] HCA 34 (Fortescue) in which Hayne, Bell and Keane JJ said at [130], with Kiefel J agreeing at [229]:
In Melbourne Corporation, Dixon J said that:
“The foundation of the Constitution is the conception of a central government and a number of State governments separately organized. The Constitution predicates their continued existence as independent entities.”
And as was said in the Work Choices Case, the separate polities whose continued existence is predicated “are to continue as separate bodies politic each having legislative, executive and judicial functions”. Hence, as the decisions in Austin and Clarke each demonstrate, the Melbourne Corporation principle requires consideration of whether impugned legislation is directed at States, imposing some special disability or burden on the exercise of powers and fulfilment of functions of the States which curtails their capacity to function as governments.
[Footnotes omitted.]
178 The principle is directed to legislation which curtails the capacity of a State to function as such. The Commonwealth and the Authority submitted that the challenged provisions of the Act do not relate to the capacity of the States to function as such. They argued that both the Tasmanian Dam Case and Western Australia v Commonwealth (1995) 183 CLR 373; [1995] HCA 47 (Native Title Act Case), which both concerned State control over its natural resources, lead inevitably to this conclusion. Mr King argued that the question whether the challenged provisions curtailed the capacity of the Basin States to function as such should not be determined in an application for summary judgment because that question required an extensive factual enquiry.
179 In the Tasmanian Dam Case the Commonwealth legislative scheme had the effect of preventing the construction of a dam in any part of a large area of State land in Tasmania. Mason J at 139-141, Murphy J at 169, Brennan J at 214, and Deane J at 281 each held that the scheme did not infringe the Melbourne Corporation principle. Brennan J explained at 214-5:
The Commonwealth measures diminish the powers of the executive government but they do not impede the processes by which its powers are exercised. There is no foundation for attributing to the control of the mass of waste lands of a State a special immunity from valid Commonwealth law. Waste lands of a State are to be administered by the executive government of the State according to the law which is binding upon it, including the laws of the Commonwealth that bind the State. A restriction upon the doing of specified acts in the exercise of an executive power to use and to control the use of waste lands is no invalid intrusion upon the exercise of that power.
180 This passage was cited with approval in the joint judgment of Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ in the Native Title Act Case. In that case Western Australia argued that the Native Title Act 1993 (Cth), and the future act regime in particular, were invalid because they infringed the Melbourne Corporation principle in that they interfered with the capacity of Western Australia to function as a government. The joint judgment at 478-480 described the case put by Western Australia thus:
The statement of claim filed by Western Australia contains two paragraphs which describe functions of the State which are pleaded to be “fundamental” or “essential”:
62. The capacity and power to grant, regulate and otherwise deal with land and other resources in Western Australia, including the capacity and power to appropriate land for public purposes and to alienate and develop Crown lands, particularly for agricultural, pastoral and mining purposes in accordance with the laws in force in Western Australia is a fundamental sovereign function of the Government of Western Australia as a State.
63. The capacity and power to administer and regulate land and other resources in Western Australia and the revenue derived from it are essential to the continued existence of the State and its capacity to function as a government.”
The pleading of the State’s functions was expanded by reference to material showing the extent and importance of the State's function of administering land and mineral resources. The Native Title Act is said to interfere impermissibly with the State’s capacity to perform these functions.
Western Australia is the largest of the States. It has an area of 2,527,620km2: 35 per cent (895,694km2) is classified as "vacant Crown land"; 16 per cent (402,996km2) as reserves and 1 per cent (18,902km2) as State forests and timber reserves. The remainder of the State is the subject of Crown grants: 7 per cent (182,380km2) is private freehold; 38 per cent (951,006km2) is pastoral leasehold and 3 per cent (76,640km2) other leasehold. The administration of this land and its resources occasions a great number of decisions and actions each year. In the year 1992-1993, the following number of transactions took place: 2,400 in creating, vesting and amending reserves; 460 in creating, deviating, closing and disposing of roads; 3,230 in releasing or selling lots of land, granting easements and other tenures and offering leases; seventy-two in resuming land for government or local authorities; and thirty in acquiring land for public works.
The Executive Government of Western Australia administers legislation governing mining for minerals including petroleum and the pipeline transportation of petroleum products. It also administers State agreement legislation which is enacted where a development project requires the co-ordination of extensive services by State and by private enterprise. The mining industry of Western Australia is of great economic and social importance. It produces significant proportions of the world production of iron ore, alumina, nickel, mineral sands, liquified natural gas, gold and gem diamonds. The value of Western Australian minerals and energy production in the year 1991/92 was $10,238m. Capital expenditure on the industry for the year 1992/93 was $2,196.2m. Employment in the mining and energy industries in 1993 accounted for 3.87 per cent of the State's workforce (30,300 people).
These bare statistics indicate the extent of the function of administering land and mining legislation in the State, to mention only the chief categories of administrative activities that are affected by the Native Title Act. The Native Title Act is said by Western Australia to operate in that State "in a disproportionate and discriminatory way" and to be likely "significantly to interfere with mineral exploration and mining in Western Australia". Accepting for the purposes of determining constitutional validity that the Act will complicate government administration in Western Australia and delay the making of administrative decisions, the question is whether those effects constitute an impermissible interference with the capacity of the Government to function as such.
181 In rejecting the Western Australian submission, the joint judgment relied on the passage from the judgment of Brennan J in the Tasmanian Dam Case extracted at [179] of these reasons. It then continued at 481:
The Act does not purport to affect the machinery of the government of the State. The constitution of the three branches of government is unimpaired; the capacity of the State to engage the servants it needs is unaffected; the acquisition of goods and services is not impeded; nor is any impediment placed in the way of acquiring the land needed for the discharge of the essential functions of the State save in one respect, namely, the payment of compensation. The Act does not impair what Dawson J described as "the capacity to exercise" constitutional functions though it may affect the ease with which those functions are exercised.
182 Recently, in Fortescue, the High Court again considered the application of the Melbourne Corporation principle to the role of the States in managing and controlling their natural resources. In that case some iron ore mining companies challenged Commonwealth legislation which imposed a tax on certain profits from mining. One challenge was based on the Melbourne Corporation principle. The joint judgment of Hayne, Bell, Keane JJ described the argument of Western Australia and the reason for rejecting it at [132]-[133] thus:
132. Western Australia submitted that it is “central to the capacity of [the] State to function as a government under the Constitution that it have the power to determine the most appropriate means of financing the development of communities in Western Australia”. This submission bore a striking resemblance to arguments advanced by that State, and rejected, in Western Australia v The Commonwealth (Native Title Act Case). Western Australia alleged, in the Native Title Act Case, that, because the “capacity and power to grant, regulate and otherwise deal with land and other resources in Western Australia ... is a fundamental sovereign function of the Government of Western Australia as a State”, provisions of the Native Title Act 1993 (Cth) were invalid. But as the plurality held in that case:
“The [Native Title Act] does not purport to affect the machinery of the government of the State. The constitution of the three branches of government is unimpaired; the capacity of the State to engage the servants it needs is unaffected; the acquisition of goods and services is not impeded; nor is any impediment placed in the way of acquiring the land needed for the discharge of the essential functions of the State save in one respect, namely, the payment of compensation. The Act does not impair what Dawson J described [in Queensland Electricity Commission v The Commonwealth] as ‘the capacity to exercise’ constitutional functions though it may affect the ease with which those functions are exercised.”
133. If the MRRT [Minerals Resource Rent Tax] Legislation does affect the States’ control over land and resources, the effect is less direct and more speculative than the effect of the Native Title Act. If, then, the MRRT Legislation does diminish the choices available to the executive governments of the States, that diminution does not engage the Melbourne Corporation principle.
[Footnotes omitted.]
183 The terms and operation of the challenged parts of the Act are directed to setting and enforcing the limits on the amount of water which can be taken from the Murray-Darling Basin so that there is a balance remaining sufficient to ensure the environmental health and sustainability of the ecosystems of the Basin.
184 The process adopted by these provisions recognises that water resources of the Basin are largely governed by laws of the Basin States. Consequently, the challenged provisions utilise the pre-existing State administrative structure as a basis for implementing the Basin Plan. Thus, for instance, the SDLs must be incorporated into the plans for the local areas already delineated under the Basin States’ laws. Further, only if the States fail to do so can the Authority be required to make a plan for that area. Because the Commonwealth intended to purchase water entitlements to bridge the gap between the amount of water presently available for the environment and the amount of water necessary for it in the future, the Act established the Commonwealth Environmental Water Holder in order to hold the Commonwealth’s water entitlements and utilise them for environmental purposes.
185 In arguing against summary judgment Mr King contended that it was necessary for Mr Lee and Mr Gropler to adduce evidence in support of the Melbourne Corporation principle to show the dependence of the States on the waters of the Murray River for drinking, agriculture and industry, the effect of Commonwealth control over water markets, and the role of the Commonwealth in approving water sharing plans. Such evidence, however, would be directed to demonstrating that the Act has a significant impact on the administration of the water resources of the Murray-Darling Basin. It is of the type referred to in the Native Title Act Case in the passage extracted at [180] of these reasons for judgment. The evidence which Mr King seeks to adduce, however, is not directed to the issue raised by the Melbourne Corporation principle; namely, whether the Act interferes with the capacity of the States to function as such.
186 The terms and operation of the challenged provisions do not impair the capacity of the Basin States to function as such. These provisions are analogous to the legislative controls over natural resources upheld in the Tasmanian Dam Case and the Native Title Act Case. Consequently, Mr Lee and Mr Gropler have no reasonable prospect of successfully prosecuting the Melbourne Corporation claim. Judgment should be given under s 31A for the Commonwealth and the Authority on this aspect of the case.
THE INTERSTATE COMMISSION CLAIM
187 The amended statement of claim pleads the s 101 claim as follows:
55. This is a mandatory provision of the Constitution which the First Respondent has not complied with.
56. Expressly or impliedly the Constitution Chapter IV guarantees that the exercise of legislative and executive power by the Commonwealth relating to trade and commerce shall not by any entity established by the Commonwealth impair the execution and maintenance of the provisions of the Constitution with respect to trade and commerce and in particular sections 92, 99 and 100.
57. The First Respondent has failed to provide for the Inter-State Commission or any like entity to provide for the ongoing constitutional protections provided for by Chapter IV, but instead by the Act the Parliament has established the Second Respondent, such that in the respects alleged herein and in particular paragraphs [25] to [48], has provided for laws relating to trade and commerce in the Commonwealth which do not execute or maintain the provisions of the Constitution or laws made thereunder, but rather as alleged herein impair the provisions of the Constitution relating to trade and commerce.
58. In the premises the Act Parts 9, 10, 10A and 11A which provide for the Second Respondent and confer certain specified powers and duties impair the execution and maintenance of the Constitution relating to trade and commerce are invalid.
59. The Applicants also seek a declaration that the First Respondent has failed to comply with the Constitution section 101.
188 The claim first attacks the failure of the Commonwealth to establish the Inter-state Commission, and second, attacks the establishment of the Authority.
189 As to the failure of the Commonwealth to establish the Inter-state Commission, the Commonwealth correctly argued that Mr Lee and Mr Gropler do not have standing to bring that claim. A member of the public who has no special interest beyond that of any other member of the public in upholding the law has no standing to enforce public duty. That is for the Attorney-General. A person has a special interest if that person is likely to gain an advantage other than an emotional or intellectual satisfaction by succeeding in the action: Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR at 526, 530; [1980] HCA 53 at [12], [20], per Gibbs J. Mr Lee and Mr Gropler do not have a special interest in enforcing s 101 of the Constitution. The question of standing is subsumed within the requirement that there be a matter in order to attract the jurisdiction of the Court: Plaintiff S10/2011 v Minister for Immigration and Citizenship (2012) 246 CLR 636; [2012] HCA 31 per Gummow, Hayne, Crennan and Bell JJ at [68]. As they lack standing, there is no matter which founds the jurisdiction of the Court.
190 The way in which the challenge to the establishment of the Authority is said to give rise to a claim under s 101 of the Constitution seems to be that the Authority was formed in place of the Inter-state Commission. If this is so, there is no logical link asserted by Mr Lee and Mr Gropler between the terms of s 101 and the complaint made. The pleading also suggests that the Authority is impugned because it is given functions by provisions which breach ss 92, 99 and 100 of the Constitution. However, these reasons have concluded that the ss 92, 99 and 100 claims are not sustainable. Consequently, if that is the basis of the challenge, it is also unsustainable.
191 Thus, Mr Lee and Mr Gropler have no reasonable prospect of successfully prosecuting the s 101 claim. Judgment should be given under s 31A in favour of the Commonwealth and the Authority on this aspect of the claim.
192 The amended statement of claim ([60]-[78]) alleges a number of different acquisitions of property. The allegations lack clarity. They generally fail to identify the elements necessary to plead a cause of action under the section. It is only possible to understand them by taking into account Mr King’s elaboration and explanation made in oral submissions of what the pleading is intended to allege. On that approach, the following seems to be the basis of the claims under s 254.
193 It is alleged in [61]-[63] of the amended statement of claim that in June 2004 the Basin States entered into the National Water Initiative and associated intergovernmental funding arrangements. Then, in accordance with the National Water Initiative the Basin States enacted legislation which provided for the unbundling of water entitlements. As the water entitlements then became independent from ownership of the land they could be traded. Provision was made by State legislation for markets in which the trades could occur. Then it is alleged:
64. As a consequence of and in pursuance of the NWI [National Water Initiative], State laws were made which by their terms, operation or effect, acquired property of the Applicant other than on just terms.
Particulars of State laws
I. Water Act 1989 (Vic) (order unbundling rights – June 2007).
II. Natural Resource Management Act 2004 (SA).
III. Water Management (Amendment) Act 2005 (NSW).
194 The attack on the Act is then pleaded as follows:
65. The Act is a law of the Parliament of the Commonwealth with respect to the acquisition of property other than on just terms in that it adopts and provides for by separate measures of its own the States measures provided for by the National Water Initiative and further provides that the said State measures are a general basis of the Basin Plan.
…
67. Provisions of Part II of the Act provides for the adoption and accreditation of State water management plans in the form amended in conformity with the NWI and are a law with respect of the acquisition of property within the meaning of section 51(xxxi). That is, the commencement of the Act in its terms effected an acquisition of property.
195 These paragraphs should be regarded as a general introduction to the specific claims made by each of Mr Lee ([68]-[73]) and Mr Gropler ([74]-[77]). Whilst these paragraphs make the general allegation that the State legislation adopted by the Act results in the acquisition of property they do not specify how or by what provisions that result is achieved. Such an exercise is left to the following paragraphs.
196 The first claim by Mr Lee concerns carryover water. Paragraph [69] of the amended statement of claim pleads:
On or after the commencement of the Act, by operation of the Act and in particular Parts 6 and 11 the Holder has conserved both planned and environmental water in conservation facilities owned and managed by the States (namely the Dartmouth, the Eildon and the Hume) and in conservation facilities owned by the Commonwealth and the States (namely the Snowy Scheme) as a consequence of which the carryover water entitlements and allocations of the First Applicant at the farm at Merbein have been adversely acquired without just terms such that the First Respondent is liable to pay to the Applicant a reasonable amount of compensation for the said acquisitions.
Particulars
I. 3200 gigalitres of water (around the capacity of Hume, one of the largest conservation facilities in the Murray Darling Basin) is reserved for the Holder’s planned or environmental water to the exclusion of the Applicant’s and others’ consumptive use water.
II. The First Applicant’s right to secure water in Dartmouth, and other dams has been impaired and will continue to be impaired, as it will be reduced by 30% under the SDL.
III. Carryover water entitlements of the First Applicant will be vastly reduced under the Plan.
IV. As a consequence of the foregoing the value of the Applicant’s water entitlements has been reduced.
197 It is alleged that as a result of the Commonwealth Environmental Water Holder conserving water for environmental use, Mr Lee’s entitlement to carryover water will be reduced and the value of his water entitlements has, as a result, been reduced. It is pleaded that the Commonwealth obtained a benefit as follows:
72. In respect of each acquisition of property of the First Applicant, the Commonwealth obtained a benefit.
Particulars
I. With respect to the acquisition referred to in paragraph [70] [which seems to be an erroneous reference to [69]], the Commonwealth has obtained the use of Murray Darling Basin conservation facilities; that is, all of the dams including the Snowy Dam, in an amount equivalent to the content of the Eildon to the exclusion of the First Applicant being able to access the reasonable amount of water needed to sustain his farm viably.
198 As pleaded this claim is opaque. Mr King explained what it intended to say. As best I could understand his explanation it was that the Commonwealth Environmental Water Holder had not used all his water allocations so that the water he would have used remained in dams. That accumulation caused a spill or overflow of the dam. At the time of the spill Mr Lee and Mr Gropler had carryover entitlements, that is to say, water allocated to them which they had not used. Under the carryover rules under State laws they were entitled to use the unused water allocations in the following year. However, when the spill occurred their carryover water was lost to them.
199 Mr King suggested that the benefit of the spill was enjoyed by the Basin States or by the local irrigation authorities. Presumably, this benefit was the use of the overflow water. This is not the benefit which is urged in particular I to [72] of the amended statement of claim which is the pleaded benefit arising from this acquisition, but it was the final position taken by Mr King.
200 Properly analysed the complaint amounts to a loss of carryover entitlements. It seems that these entitlements arise under State laws. For the purpose of argument, let it be assumed that those rights were taken from Mr Lee. He still faces the obstacle that there was no acquisition of property from him by any other person. 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; [1994] HCA 9 at [9], per Deane and Gaudron JJ.
201 The situation which arises in the current case is analogous to that which rose in ICM Agriculture v Commonwealth (2009) 240 CLR 140; [2009] HCA 51 (ICM). The New South Wales Government, in agreement with the Commonwealth Government, determined to reduce the groundwater taken from the Lower Lachlan Ground Water System (LLGS) by 56 per cent to meet environmental needs of the region. This reduction was achieved by passing New South Wales legislation which had the effect of reducing the amount of water which could be accessed by the holders of bore licences. The High Court held that the reduction of the amount of water available to bore licensees did not amount to an acquisition of property. French CJ, Gummow and Gaudron JJ said at [84]:
…the groundwater in the LLGS was not the subject of private rights enjoyed by them. Rather, and as these reasons have sought to demonstrate, it was a natural resource, and the State always had the power to limit the volume of water to be taken from that resource. The State exercised that power from time to time by legislation imposing a prohibition upon access to and use of that natural resource, which might be lifted or qualified by compliance with a licensing system. The changes of which the plaintiffs complain implemented the policy of the State respecting the use of a limited natural resource, but that did not constitute an "acquisition" by the State in the sense of s 51(xxxi). Nor can it be shown that there has been an acquisition in the necessary sense by other licensees or prospective licensees. They have at best the prospect of increasing or obtaining allocations under the new system applying to the LLGS.
[Footnotes omitted.]
202 Hayne, Kiefel and Bell JJ said at [147] – [150]:
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”.
148. The only possible recipient of an advantage in this matter is the State. Did it derive some advantage from replacing the bore licences or reducing water entitlements?
149. The four considerations set out earlier in these reasons (the replaceable and fugitive nature of groundwater; that the licences in issue are a creature of statute and inherently fragile; that groundwater has not hitherto been thought to be a subject of property; and that the rights vested in the State are statutory rights for the purpose of controlling access to a public resource) all point towards the conclusion that the State gained no identifiable or measurable advantage from the steps that have been taken with respect to the plaintiffs’ water licences and entitlements.
150. Since at least 1966 no landowner in New South Wales has had any right to take groundwater except pursuant to licence. The rights the plaintiffs had under their bore licences (in particular, their right to extract certain volumes of water) did not in any sense “return” to the State upon cancellation of the licences. The State gained no larger or different right itself to extract or permit others to extract water from that system. It gained no larger or different right at all.
[Footnotes omitted.]
[Emphasis added.]
203 Mr King, however, argued that the present case was analogous to Newcrest Mining (WA) Limited v Commonwealth (1997) 190 CLR 513; [1997] HCA 38 (Newcrest). In that case, the Commonwealth extended Kakadu National Park by a proclamation which prevented mining in a proclaimed area. Newcrest held mining leases over that area. The High Court held that the Commonwealth had acquired property from Newcrest because the proclamation vested the surface of the area and minerals to the depth of 1000 metres in the Commonwealth. Gummow J said at 635 that there was an effective sterilisation of the rights constituting the property in question. At 634 and 635 Gummow J distinguished the case from those cases in which “what was in issue were rights derived purely from statute and of their very nature inherently susceptible to the variation or extinguishment which had come to pass” and from cases which involved “no more than a statutory privilege under a licensing system” .
204 In ICM the Court rejected the argument that the reduction in groundwater entitlements was an acquisition of property in the same way that the acquisition in the mining tenements in Newcrest was an acquisition of property. Hayne, Kiefel and Bell JJ said at [151]:
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.
[Footnotes omitted.]
205 French CJ, Gummow and Crennan JJ said at [85]:
The decision in Newcrest Mining (WA) Ltd v The Commonwealth does not assist the plaintiffs. To acquire the substance of proprietary interests in the mining tenements considered in that case is one thing, to cancel licences to extract groundwater is another. The mining tenements were interests carved out of the radical title of the Commonwealth to the land in question, and the radical title was augmented by acquisition of the minerals released from the rights of another party to mine them. As Brennan CJ later explained, the property of the Commonwealth had been enhanced because it was no longer liable to suffer the extraction of minerals from its land in exercise of the rights conferred by the mining tenements held by Newcrest.
[Footnotes omitted.]
206 Similarly, the present case is governed by ICM rather than 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.
207 Further, this claim seems to proceed on several factual misconceptions. The water entitlements held by the Commonwealth Environmental Water Holder have the same terms as the water entitlements held by other holders. The carryover rules which are administered by the States apply to the Commonwealth Environmental Water Holder in the same way that they apply to Mr Lee and Mr Gropler. In his affidavit, Mr Papps, the Commonwealth Environmental Water Holder, explained:
20. When managing the Commonwealth environmental water holdings, an alternative to use of water allocations in the current water year is to carryover water allocations for use in the next water year, provided that is permitted under the rules of the relevant Basin State. Carryover provides flexibility to all entitlement holders in the timing of water delivery across years. Carryover rules, which are set by Basin States, vary markedly for different entitlements and in different water plan areas across the Murray-Darling Basin. The carryover limits, account limits and use limits apply to all entitlement holders, including the Commonwealth.
21. State and Territory rules associated with water entitlements manage third party impacts between entitlement holders as a result of their carryover decisions. These States and Territory rules limit the impact that the decisions of other entitlement holders can have on the Commonwealth environmental water holdings, but they similarly limit any impact that my decisions regarding carryover of Commonwealth environmental water might have on other entitlement holders.
208 Further, the Commonwealth Environmental Water Holder reported that for the years 2008/9 to 2011/12 across the Murray-Darling Basin on a proportional basis the Commonwealth used more and carried over less of the water available under the Commonwealth water holdings compared to the average use and carryover of other water entitlement holders. Mr Papps was cross-examined on this matter and confirmed the position. This evidence was not challenged.
209 Next, is a claim that Mr Lee’s irrigation assets have become stranded and “hence acquired”. This claim is pleaded in [70] of the amended statement of claim as follows:
Further, by operation of the Act in particular Parts 6 and 11 without any compensation being provided to the First Applicant, on or after the commencement of the Act the Holder has acquired otherwise than on just terms water entitlements and allocations from other Murray Darling Basin water users within the Merbein irrigation district whereby water assets of the First Applicant including approved works and delivery infrastructure have become stranded and acquired, thereby increasing the delivery costs and expense to the First Applicant of obtaining water, or by reason of closure of other irrigation farms in Victoria has led to increased costs and expense under State imposts.
210 A like claim is made on behalf of Mr Gropler ([75]).
211 On its face this paragraph makes no sense as a claim under s 254. The acquisition about which complaint is made is the acquisition of irrigation delivery infrastructure. This is said to have occurred by the Commonwealth Environmental Water Holder acquiring allocations from irrigators other than Mr Lee and Mr Gropler.
212 In order to make sense of this paragraph it is necessary to take into account the explanation given by Mr King of what was intended, and also to take into account the evidence of Mr Lee and Mr Gropler concerning their problems with the legislative system. With these matters in mind it seems that Mr Lee and Mr Gropler seek to claim that the Commonwealth Environmental Water Holder has acquired water entitlements for use for environmental purposes from farmers who previously used the rights to operate irrigation farms and required the use of the irrigation delivery infrastructure. In many cases the Commonwealth Environmental Water Holder does not need to use the irrigation channels and pumps and other parts of the irrigation delivery infrastructure. Consequently, there are less users to contribute to the maintenance of that infrastructure because the water holdings held by the Commonwealth Environmental Water Holder are used for watering the environment and not for irrigation. The costs of maintenance of the infrastructure must be borne by fewer users and as a result the cost for the remaining users is increased.
213 When understood in this way, the claim is that the way in which the legislative scheme has operated has resulted in an increase in the delivery costs incurred by the remaining irrigators.
214 Mr Lee and Mr Gropler gave evidence about a further detrimental effect of the legislative scheme. This is perhaps hinted at in the paragraph, albeit obliquely and without any development. The Commonwealth has acquired water entitlements on terms that the property not be used for irrigation farming for the following five years. The result is the “Swiss cheese effect”, that is to say, the remaining irrigation farms are left isolated and surrounded by empty blocks which were previously irrigation properties. Mr Lee and Mr Gropler said that the value of their properties declined because irrigators in their localities sold out to the Commonwealth and their farms are no longer used as irrigation properties.
215 Accepting for the purposes of argument that the operation of the 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, these economic consequences have not resulted in any acquisition of property by the Commonwealth. The outcome does not found a claim under s 254
216 Finally, it is alleged that some of the water entitlements of Mr Lee and Mr Gropler have been acquired on terms which were not just. In relation to Mr Lee the allegation in [71] is as follows:
Further, on or after the commencement of the Act by operation of the provisions of the Act and in particular Parts 6 and 11 of the First Applicant’s water entitlement have in part been acquired without just terms such that the First Respondent is liable to pay to the First Applicant a reasonable amount of compensation for the said acquisitions.
Particulars
I. As a result of the trading and holding activities of the Holder in the water year 2008/2009 and the laws providing for privatisation and commoditisation adopted by the Act the amount of high security water in Victoria was scarce such that the First Applicant was required to trade high security water in order to have a reasonable amount of water for irrigation of his permanent plantings and to maintain the farm:
II. As a consequence of the activities of the Holder substantial economic value has been leached from the First Applicant’s equity in his water entitlement and his farm.
217 In relation to Mr Gropler the allegation is in part of [75] of the amended statement of claim as follows:
By operation of the Act and in particular Part 6 and 11, the Holder has since 2008 in the Cobdogla irrigation district purchased, held and traded substantial amounts of water entitlements, using a tender process at floor prices with delayed payment (after ten months or more) instead of paying through the water exchange by cash against water, water prices have significantly fallen from $2500 per megalitre to $1400 per megalitre and the Second Applicant’s equity in his water entitlements and the farm have been adversely affected and acquired …
218 The benefit obtained by the Commonwealth is said to be that it obtained water at a reduced price ([72(II)] of the amended statement of claim, in which the reference to paragraph [70] should presumably be a reference to [71]).
219 Insofar as this claim depends on the sale of environmental water by the Commonwealth Environmental Water Holder prior to the hearing, it is based on a factual error. Mr Papps gave evidence that up to the time of the hearing the Commonwealth Environmental Water Holder had not sold water entitlements. He was in the process of considering whether he would do so in the future. The post-hearing evidence disclosed that Mr Papps decided in January 2014 for the first time to sell a limited amount of the temporary water allocations held in the Gwydir Valley in northern New South Wales which was not required for environmental purposes.
220 Mr Lee and Mr Gropler both sold some water entitlements to the Commonwealth. They sold those rights on the market and obtained the market price. That price fluctuates. Mr Gropler said that in the past the price had reached $2650 per megalitre and was $1400 per megalitre when he gave evidence. A significant effect on price is supply and demand which in turn is influenced by drought and other climatic conditions. The complaint that Mr Lee and Mr Gropler did not achieve a better price in the market when they sold to the Commonwealth is not a sustainable claim under s 254.
221 It follows from this section of these reasons for judgment that Mr Lee and Mr Gropler have no reasonable prospect of prosecuting the s 254 claim successfully. Judgment should be given under s 31A in favour of the Commonwealth and the Authority on this part of the claim.
THE SECOND INTERLOCUTORY APPLICATION
222 On 8 July 2013, after hearings on 25, 26 and 27 June 2013, and before the last day of hearing on 9 July 2013, the Commonwealth and the Authority filed a further interlocutory application. The application formulated a series of questions raised by the proceeding and asked the Court to provide answers to these questions. The questions sought to raise the same matters as had been argued in the original interlocutory application filed on 30 April 2013.
223 By adopting this procedure the Commonwealth and the Authority intended to have the issues resolved finally rather than on an interlocutory basis. That course was opposed by Mr King.
224 By the time the second interlocutory application had been filed, the matters in issue had been fully argued within the framework of the first interlocutory application. The later interlocutory application was filed almost at the end of the hearing, and may have given rise to issues concerning the formulation of the questions to be answered. The more convenient course is to resolve the initial interlocutory application and dismiss the later application.
THE MATTER ARGUMENT AND SOME FUNDAMENTAL MISCONCEPTIONS
225 The Commonwealth and the Authority contended in [1] of the interlocutory application filed on 30 April 2013 that the s 100, the s 101 and the claim by Mr Lee that there had been an acquisition of his carryover entitlements on terms which were not just did not raise matters for the purposes of Chapter 3 of the Constitution or s 39B(1A)(b) or s 44(3) of the Judiciary Act. For example, as the SDLs were not to come into operation until 2019, and if the Commonwealth continued to purchase water entitlements, the SDLs would have no effect on the water entitlements held by Mr Lee and Mr Gropler, there was no real controversy about an immediate right as is required to constitute a matter: In Re Judiciary and Navigation Acts (1921) 29 CLR 257; [1921] HCA 20. It followed, they contended, that the Court should dismiss these claims because it has no jurisdiction to determine them.
226 In view of the conclusion that there should be judgment for the Commonwealth and the Authority under s 31A of the Federal Court Act in relation to these claims, it is unnecessary to determine this submission of the Commonwealth and the Authority.
227 However, 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 SDLs under the Basin Plan. Considerable emphasis was placed by Mr Lee and Mr Gropler, and also by Mr King, on the proposition that the fixing of the SDLs has the effect of reducing the water entitlements of Mr Lee and Mr Gropler by around 25 per cent, and thereby denying them water to such a degree that their farms are no longer viable. One example can be seen in the evidence referred to in [41] of these reasons for judgment.
228 There are several misconceptions running through this central concern raised in the proceeding which should be explained.
229 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 per cent 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.
230 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.
231 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.
232 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.
233 These reasons for judgment explain why there must be judgment for the Commonwealth and the Authority on the pleaded case as explained by Mr King. At the same time there is no reason to doubt that Mr Lee and Mr Gropler have been adversely affected in recent times in their occupation as irrigation farmers. The changes in the legislative regime applicable to them, and the consequent change in government policy settings concerning water entitlements, have played a part in the difficulties which they have encountered. Other factors such as extended drought conditions have also contributed to their difficulties. The rejection of the legal arguments does not minimise the personal difficulty experienced by irrigation farmers in the Basin arising from these circumstances.
234 It follows from these reasons that:
1. The application to amend [45] of the statement of claim, and to add [47A], and [47B] to the statement of claim, should be refused; and
2. The Court is satisfied that Mr Lee and Mr Gropler have no reasonable prospect of successfully prosecuting any of the claims made in the proceeding and consequently there should be judgment under s 31A of the Federal Court Act for the Commonwealth and the Authority in the proceeding; and
3. The interlocutory application filed by the Commonwealth and the Authority on 8 July 2013 seeking answers to separate questions should be dismissed; and
4. Mr Lee and Mr Gropler should pay the respondents’ costs of the proceeding.
| I certify that the preceding two hundred and thirty-four (234) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North. |
Associate:
