ICM Agriculture Pty Ltd & Ors v The Commonwealth of Australia

[2009] HCATrans 201

[2009] HCATrans 201

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S24 of 2009

B e t w e e n -

ICM AGRICULTURE PTY LTD ABN 32 006 077 765

First Plaintiff

ICM AUSTRALIA PTY LTD ABN 49 005 120 703

Second Plaintiff

HILLSTON CITRUS PTY LIMITED ABN 45 100 483 243

Third Plaintiff

and

THE COMMONWEALTH OF AUSTRALIA

First Defendant

NATIONAL WATER COMMISSION

Second Defendant

THE STATE OF NEW SOUTH WALES

Third Defendant

THE MINISTER ADMINISTERING THE WATER MANAGEMENT ACT 2000 (NSW)

Fourth Defendant

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 26 AUGUST 2009, AT 10.22 AM

(Continued from 25/8/09)

Copyright in the High Court of Australia

__________________

FRENCH CJ:   Yes, Mr Solicitor.

MR GAGELER:   Your Honours, I was dealing with the premise of the plaintiff’s argument that as at the date of the funding agreement, that is, 4 November 2005, what was required then of the State under paragraph 1.8 of the Schedule as a condition of payment by the Commonwealth under clause 4.1 is properly characterised as an acquisition of property otherwise than on just terms.  In that context I was about to turn, at the close of play yesterday, to the legislation contained in the first and second defendant’s book of legislation, which is the relevant State acts as at that date.

My purpose, your Honours, in taking you to this legislation is basically twofold. One is to make the point that the water entitlements to the Lower Lachlan groundwater system, that is, the subject matter of clause 1.8 of the funding agreement as at 4 November2005, were wholly statutory and were defined by a statutory scheme which comprised at that time interlocking provisions of the Water Act 1912 and the Water Management Act 2000, that is the first point. The second point is that within the scope of that statutory scheme and by virtue of their statutory incidents those water entitlements were, as at 4 November 2005, susceptible to reduction in precisely the manner contemplated by the funding agreement.

Within the bundle of legislation your Honours have the 1912 Act at tab 1 and the 2000 Act at tab 2.  Can I start in the 2000 Act using the pagination that appears in the middle of the page at the top.  At page 179 section 2(1) provided that the Act commenced on a day to be appointed by proclamation.  That day was 1 January 2001.  Section 2(2) provided that, “Different days may be appointed for the commencement of a single provision”, relevantly, of schedule 7. 

Schedule 7 then appears at page 383.  Schedule 7, in accordance with section 401, set out the Acts which were repealed or to be repealed by this Act.  Your Honours will note that amongst the Acts to be repealed are the Water Act 1912. The repeal in respect of the Water Act as at the relevant date had not commenced by virtue of a proclamation under 2(2).  But further down you will also see that the Water Administration Act 1986 was to be repealed and as at the relevant date had been repealed. It was repealed also from 1 January 2001. One sees that buried within the notes at the bottom of page 439. I will not try and locate it but it is there.

At page 350, section 371(1) you will see that there was constituted by this Act the Water Administration Ministerial Corporation.  At page 400 one sees in clause 17 of Schedule 9 a statement that the Water Administration Ministerial Corporation so constituted “is a continuation of, and the same legal entity as, the Water Administration Ministerial Corporation constituted by the 1986 Act”.  So when one reads a reference to the Water Administration Ministerial Corporation in the 1912 Act, one is reading a reference to the body established under this Act.

Within the 2000 Act, going to page 357, one sees in section 392 a provision that your Honours have seen from the historical survey has antecedence in respect of surface water going back to 1896, in respect of groundwater going back to 1966 and had most recently, immediately before 1 January 2001, been reflected in section 12 of the 1986 Act.  But on and from 1 January 2001 and certainly as at 4 November 2005, it was section 392(1)(c) in combination with 392(2) which said that all rights relevantly to the control and use of all groundwater in New South Wales was vested in the State except to the extent divested by or under this or any other Act.

CRENNAN J:   Does the language suggest that the theory is there is no ownership in water?

MR GAGELER:   Yes, that certainly was the theory of the common law.  The underlying theory of the common law was that, while water remained in the ground, percolating through the substrata, nobody had property in it, and vests that water in the ground.

CRENNAN J:   That may have some importance in the context of the argument about the acquisition of property and what exactly happens when the licences are converted.

MR GAGELER:   Yes, I will come to that in due course, your Honour is absolutely right.  Can I then take you within the 2000 Act ‑ ‑ ‑

GUMMOW J:   Wait a minute, what about section 393?  That speaks to riparian rights, not to groundwater.

MR GAGELER:   Your Honour, I will come to the common law in due course, but let me say this, in short form, about the common law.  The common law recognised no property in water while it was in the ground – it recognised no property in air while it was above the ground.  It recognised a right which was an incident of the ownership of land to take water that was percolating through the ground and recognised proprietary interest in that water once it was taken, once it was in the bucket, to use your Honour’s language.

Your Honours have seen Thorpes as suggesting, or at least leaving open the possibility, that riparian rights in respect of – not of groundwater, there were no riparian rights in respect of groundwater - but riparian rights in respect of river water or water flowing across the surface of the ground may have survived the equivalent of section 392.  Section 393 is directed to closing that possible gap left open by Thorpes, but in respect of groundwater, there was no such gap.  Now, that is the property in the water under the ground. 

Let me deal with the taking of water which was at common law an incident of ownership of the land.  I will need to take your Honours here first the 2000 Act and then the 1912 Act.  There is a slight interlocking here.  Let me go first to the 2000 Act.  Within the 2000 Act the relevant section is section 341, which appears at page 337, which said:

(1)A person must not take water from a water source otherwise than:

(a)in accordance with an access licence . . . 

(2A)This section does not prevent a person from taking water from a water source pursuant to an entitlement in force under the Water Act 1912 –

That is taking.  Then you will see across the page section 342 makes almost identical provision with respect to use:

(1)A person must not use water on land for any purpose:

(a)otherwise than in accordance with a water use approval –

You will see subsection (2A) in similar terms.

GUMMOW J:   How do these provisions, do you say, interact or not interact or exhaust the law of tort considered in cases, in particular, torts of usage, for example, considered in cases like Gartner v Kidman?

MR GAGELER:   Well, my recollection is that Thorpes’ Case was a nuisance.

GUMMOW J:   That was a South Australia case?

MR GAGELER:   It was a nuisance case, I think.

GUMMOW J:   Yes, that is right.

MR GAGELER:   And it was said at that time – the passage your Honours were taken to in Justice Fullagar’s judgment was, of course ‑ ‑ ‑

GUMMOW J:   No, I was talking about Gartner v Kidman.

MR GAGELER:   I am sorry, I am getting confused.  I think the answer, your Honour, is that there is no impact on the law of nuisance.  So that is sections 341 and 342, prohibitions in this Act.  The application of those prohibitions, however, was modified by some provisions that appear at page 423.  Those provisions are within Part 3 of Schedule 10.  The relevant provisions are clauses 28 and 29.  So clause 28 said that:

Section 341(1) applies only to the taking of water from those water sources to which Part 2 of Chapter 3 applies in relation to access licences.

Your Honours will recall what was said yesterday that Part 2 of Chapter 3 was to be made applicable by a proclamation under section 55A.  Similarly clause 29 provided that:

Section 342(1) applies only to the use of water to which Part 3 of Chapter 3 applies in relation to water use approvals.

That was to occur, your Honours will recall, within the scheme of the Act by a proclamation being made under section 88A.

Now, pending the making of those proclamations, it was a similar prohibition within the 1912 Act that was applicable and one can at this stage turn back to tab 1, the 1912 Act as at the relevant date.  At page 92 your Honours see the beginning of Part 5 dealing with artesian wells and within Part 5 in section 117I at page 105 you see the prohibition which at that time remained applicable in the Lower Lachlan.  So it said:

Any person:

. . . 

(b)who takes or uses water from an unlicensed bore, or –

I am relevantly reading paragraphs (b) and (d) –

(d)who takes or uses water from a licensed bore otherwise than in accordance with the conditions of the licence and the provisions of this Part.

FRENCH CJ:   Does that pick up volumetric restrictions?

MR GAGELER:   The conditions of a licence?  Yes, it certainly does.

FRENCH CJ:   Because, 341, I think made specific reference to a limitation to take from the water allocation associated with the access licence.

MR GAGELER:   That is right.  But this does and I will show you how it picks up.  It picks up that under conditions of the licence, your Honour.

GUMMOW J:   These provisions have only gone in in 1997, I notice.

MR GAGELER:   That is right.  We are talking about the period between – well, the period from 1997 onwards was a period of great transition of course within water and when we take this snapshot as at the time of the funding agreement we are looking at two pieces of legislation that are making provision for transition from one scheme to another.

FRENCH CJ:   This was all implementing a thing called a groundwater policy framework, I think.

MR GAGELER:   From 1997, yes.

FRENCH CJ:   Yes.

MR GAGELER:   Whether these specific provisions were an implementation of that policy, I am not sure.  But there was a lot happening in water from the mid-1990s.  So there you have as at the relevant date the prohibition relevantly of taking and using water in the Lower Lachlan except pursuant to a licence under Part 5.  So there you have the two elements of the common law, if you like.  The property that did not exist in the water that was percolating under the ground is vested in the State of New South Wales by section 392 of the 2000 Act and the right that would have existed at common law for a landowner to take water is abolished by section 117I.  They are obviously interlocking provisions.  One then sees, as your Honours have already seen, the power to grant a licence in section 116, subject to such limitations and conditions as the ministerial corporation may think fit to make.

One sees in section 116D that it was the licence which authorised its holder, relevantly paragraph (b):

to take and use any water obtained by means of the bore, subject to the limitations and conditions of the licence and subject to the provisions of this Part.

So it is subject to the limitations and conditions of the licence and subject to the provisions of the part.  Can I deal first with the limitations and conditions of the licence.  One sees, just looking at the face of the legislation from section 116(1), and looking at the bracketed words, that those “limitations and conditions” were to be such “as the Ministerial Corporation may think fit to make”.

One sees again, just looking at the face of the legislation from section 105 and a definition of “water allocation” within section 105, that it was envisaged that a condition of a licence would, or could at least, restrict the volume of water which the licensee was permitted to take pursuant to the licence.  One sees in section 116C(1) that the limitations and conditions so imposed:

may be imposed on a licence at the time of, or from time to time after, the issue or grant of the licence ‑

subject only to procedural fairness provisions contained in subsection (2) and one sees in practice, and I will show your Honours an example in just a moment, that licences at this point in time and for some years before always included a restriction as to volume and always included a condition that allowed the volume to be varied at any time.

An example of that, from the plaintiff’s licences, one can see in volume 4 of the special case book at page 1373.  There is nothing unique about this.  They are all in the same basic form.  This is one of the plaintiff’s licences.  If you go first to the last condition at page 1374, condition (13), that is the restriction as to volume, not to exceed a certain megalitre level in a 12‑month period and the ability to vary is in the first of the conditions, that is that:

THE DEPARTMENT . . . SHALL HAVE THE RIGHT DURING THE CURRENCY OF THIS LICENSE TO VARY AT ANY TIME THE VOLUMETRIC ALLOCATION, OR THE RATE AT WHICH THIS ALLOCATION IS TAKEN.

FRENCH CJ:   Over and above all of that, in the case of a restricted subsurface water area you had the pre‑existing provision allowing for ministerial directions as to ‑ ‑ ‑

MR GAGELER:   Yes, I was going to come to that in a moment.  I am just dealing with the terms of the licence, but we are just looking for the moment at the limitations and conditions in the licence, within the licence itself there was a restriction and within the licence itself an ability to vary the level.  That that is in a standard form is made clear by the facts recorded in the special case book, volume 1, pages 88 to 89, paragraphs 30 to 32.  It had been the standard form for some considerable time.  In terms of the plaintiff’s licences, I have taken you to one example.  We have in our written submissions, in footnote 96, collected irrelevant references. 

So that is the terms and conditions of the licences themselves and then following on from your Honour the Chief Justice’s observations, there were then the provisions of Part 5.  The provisions of Part 5 included particularly two relevant sections.  One was section 117E to which your Honour the Chief Justice just referred.

FRENCH CJ:   I think I was talking about A actually.

MR GAGELER:   I am sorry?

FRENCH CJ:   A.  Just talking about the situation of a declaration of restricted ‑ ‑ ‑

MR GAGELER:   Yes, I thought your Honour was using the terminology of E.

FRENCH CJ:   No. 

MR GAGELER:   That is fine, the two provisions, I was going to them in order, A first.

FRENCH CJ:   Yes.  The thing is that 117A predated the introduction of 116C, I think, and B, did it not?

MR GAGELER:   That is right.

FRENCH CJ:   The facility is subject to this declaration to make volumetric variations.

MR GAGELER:   That is right.

GUMMOW J:   Section 117A had been there since 1966.

MR GAGELER:   It has been there a long time, yes.  The two provisions within Part 5 that allowed for variation 117A which was triggered by an order published in the Gazette declaring a restricted subsurface water area for that purpose.  Your Honours may recall that such a declaration had been made in respect of the Lower Lachlan in 1984.  One sees that from the special case, paragraph 63.  Declarations covering all subsurface water basins in New South Wales had existed from 1994.  That was paragraph 33 of the special case.  Those declarations triggered then the power in subsection (3), relevantly paragraph (a)(i) to which your Honours have already been taken. 

Then, in addition, there was the power conferred by section 117E upon the ministerial corporation’s satisfaction that a subsurface water basin was unlikely to have sufficient water to meet the needs.  There was an ability under that provision to suspend or restrict the entitlement of licensees and subsection (2) spelt out that that could include producing a water allocation.  That is as set out in the terms of the licence.

FRENCH CJ:   That happened for this area in 1999, I think – the Lower Lachlan groundwater system.

MR GAGELER:   No.  Your Honour may be thinking of another provision.

FRENCH CJ:   I am sorry.  In 1998 it was declared a water shortage zone.

MR GAGELER:   For another purpose, I think, for the purposes of section 113A.  No, I do not think that this provision had been actually used in practice in the Lower Lachlan, but it was sitting there and available.  Bringing all of that together, what one had under the 1912 Act as at the relevant date – and ignoring entirely the overlay of the 2000 Act – was an entitlement to take and use water conferred by a licence issued under section 116 which was subject to reduction without compensation at any time by any one of four possible means.

One was section 117A, another was section 117E, another was a new condition introduced into the licence at any time under section 116 itself relying on section 116C simply giving procedural fairness, and another was variation under the existing standard condition of each licence that had been issued.   I am being told from two sides that your Honour the Chief Justice may have had in mind what appears in paragraph 64 of the special case book about section 113A.

FRENCH CJ:   Yes.  Thank you.

MR GAGELER:   All of that was expressly, and by reason of the language of section 116D, subject to the provisions of this part by implication and of necessity, in our submission, subject to the provisions of this part as they may exist from time to time and as amended or affected by the provisions of other legislation as it might exist from time to time including in particular the 2000 Act.

Now, if I can take your Honours back to the provisions of the 2000 Act, which was sitting there hovering or waiting for a proclamation under sections 55A and 88A to come to bite in this area.  If one goes here to Schedule 10 at page 410 - your Honours have seen parts of this already.  Clause 1 made the trigger for the application of the schedule, the making of “a proclamation under section 55A” and the making “of a proclamation under section 88A”.

There is then in clause 2 a definition of “appointed day” which is the day set by such a proclamation under 55A or 88A as the case may be and a definition also of “entitlement”, relevantly paragraph (c) of that definition included:

a licence referred to in Part 5 of the 1912 Act -

Clause 3 then, at the relevant time, was slightly different from the version your Honours have seen.  It provided:

Subject to this Schedule, an entitlement that, immediately before the appointed day, was in force under the 1912 Act . . . is taken to have been replaced -

and here the relevant provisions are (a) and (c):

to the extent to which it entitles any person or body to take a specified quantity of water, by an access licence held by that person or body for the quantity of water so specified (subject to such of the conditions ‑

Paragraph (c):

to the extent to which it entitles any person or body to use water on any land, by a water use approval held by that person or body in respect of that land ‑

So the conversion or transmogrification that was envisaged here was a straight one‑for‑one conversion.  You take the allocation under the old licence and it becomes a similar allocation under the new licence but then to be dealt with in accordance with the provisions of this Act, and I need to take your Honours through some of those provisions.  Within Schedule 10 also one needs to note clause 34(2) which says:

Part 5 of the 1912 Act does not apply to or in respect of any water source, work, use of water or activity to the extent to which Part 2 or 3 of Chapter 3 applies –

So upon the proclamations occurring under sections 55A and 88A making Parts 2 and 3 of Chapter 3 of this Act applicable, what was to happen was the conversion, the one‑for‑one conversion, under clause 3 into entitlements, relevantly an access licence and a water use approval under the provisions of this Act and the provisions of the 1912 Act were to be wholly withdrawn.  All of that simply by an exercise of statutory power under the 2000 Act. 

Now, the terms of the 2000 Act were then to govern the transmogrified entitlements.  I need to go through in just some little detail and as little detail as possible is what I will bring to bear.  Relevantly, we only need to look at the access licence provisions, that is Part 2 of Chapter 3 beginning at page 206, starting with section 56:

An access licence entitles its holder:

(a)to specified shares in the available water within a specified water management area or from a specified water source –

That was known as the share component and you will see from subsection (2)(a) that the share component could be expressed, and your Honours have seen was expressed in practice “as a specified maximum volume over a specified period” megalitres per year.  That section refers to shares in available water.  The term “available water” was defined at page 431 in the dictionary in relation to a water source to mean:

the water that is available in that area or water source in accordance with an available water determination –

that is in force and an available water determination was a determination referred to in section 59. 

Your Honours will see section 59 then at page 208 - “Available water determinations” and at subsection (1)(a) an available water determination was made by the Minister from time to time and it was:

a determination as to the availability of water for the various categories or subcategories of access licences in relation to one or more specified water management areas or water sources -

In making such an available water determination, the Minister was bound by section 48 to:

take all reasonable steps to give effect to the provisions of any management plan and, in particular, to ensure that any environmental water rules established by the plan are observed.

I will come to the plan in a moment.  The Minister was also bound by section 60(1) relevantly, which said that certain:

rules of distribution apply to the making of an available water determination of a type referred to in section 59(1)(a):

. . . 

(b)the provisions of any relevant bulk access regime,

(c)the provisions of any relevant management plan –

and still, before coming to a management plan and a bulk access regime the conditions of an access licence one sees dealt with in section 66, relevantly, section 66(1)(a) which provided that:

An access licence is subject to:

(a)such conditions as are from time to time required to be imposed on the access licence by the relevant management plan or this Act (mandatory conditions) -

Section 67(2A) said that:

Mandatory conditions are to be imposed on an access licence whenever it becomes necessary to do so in order to give effect to a relevant management plan.

Section 68A then said that:

(1)The Minister may amend the share component or extraction component of an access licence in accordance with the relevant management plan.

If one then goes over to section 79 where there is a power in subsection (1) to “compulsorily acquire access licences” if the Minister considered it in the public to do so, giving rise to a right of compensation under subsection (2).  The final subsection, subsection (7) said:

For the avoidance of doubt, it is declared that a reduction of the water entitlements and allocations under an access licence as a consequence of a variation in the mandatory conditions of the licence does not constitute the compulsory acquisition of an access licence or any part of an access licence.

If the management plan provided for it and provided for mandatory conditions then the share components could be reduced under the scheme of this Act, including the transmogrified shared components.  The management plan was a plan made by the Minister, either under section 41 when it was automatically subject to all of the provisions of Part 3, or under section 50, and in the case of section 50 which was used in the present circumstances - section 50 is at page 202 - subsection (2A) provided that Part 3 with presently irrelevant exceptions applied to the plan.  Within Part 3 we need to go to just a couple of provisions.  The first is section 16(1)(a) which was a requirement that:

A management plan must be consistent with:

(a)     the State Water Management Outcomes Plan –

That was something established under section 6(1) and I will come to that in a moment.  Section 20(1)(e) - the whole of section 20 is significant but I will just go to the most significant part:

(1)The water sharing provisions of a management plan for a water management area or water source must deal with the following matters:

 . . . 

(e)the establishment of a bulk access regime for the extraction of water under access licences -

(2)The bulk access regime referred to in subsection (1)(e):

(a)must recognise and be consistent with any limits to the availability of water that are set . . . in relation to the water sources . . . 

(e)may contain provisions with respect to the conditions that must (as mandatory conditions) be imposed on access licences under section 66(1), including conditions providing for the variation, from time to time, of the share and extraction components of access licences - 

What your Honours are seeing is a pattern whereby everything depended on the management plan as it was to exist from time to time.  Section 45, at page 199 then provided, subsection (1)(b) that:

The Minister may at any time, by order published in the Gazette, amend a management plan:

. . . 

(b)in such circumstances, in relation to such matters and to such extent as the plan so provides -

That is significant. That is to be read with subsection (8) which is product of an amendment that when one comes to the relevant management plan, one has to note that a reference in the plan to section 42(2) – the Act in a slightly earlier version is to be read as a reference to section 45(1)(b). The significance of that again goes to the absence of any compensation for reduction. One sees the significance played out in section 87 where the general rule is in subsection (1) that:

A holder of an access licence . . . whose water allocations are reduced as a consequence of the variation of a bulk access regime may claim compensation for loss suffered by the holder as a consequence of that reduction.

Then there was relevantly an exception in section 87(2)(c):

Despite subsection (1), compensation may not be claimed if the variation of the bulk access regime results from:

. . . 

(c)an amendment of a management plan by the Minister under section 45 that is authorised by the plan –

So, reduction without compensation.  Again, all dependent on the management plan.  As I pointed out, the management plan was to be consistent with the State water management outcomes plan.  That was a statutory instrument which, as in force as at 4 November 2005, your Honours find in the special case book, volume 2 at page 522.  The most relevant part of this document appears at page 556 under the heading “Five year water management targets”, “Division 1, Limits on extractions”.  Relevantly, Target 1e provided that:

The long term average annual extractions for groundwater limited (or being phased down) to an ecologically sustainable level (the Sustainable Yield) as determined by detailed assessment of each groundwater source . . . In the absence of such an assessment –

there were certain rules to be applied.  That was a target of the State water management outcomes plan that any management plan for a water source had to comply with.  We then come to the management plan that had been made, was on the books as at the relevant date for the Lower Lachlan.  One sees that in volume 3 of the special case book at page 957.  That was an instrument that was made on 26 February 2003 and you will see at page 959, clause 3, was to have taken effect on 1 July 2003 and to apply for a period of 10 years.

It is recorded in the special case, paragraph 71, that as at 4 November 2005 its commencement had been deferred. That was by amendment. There was a series of amendments continuously deferring that commencement. But this is what was to occur consistently with the scheme of the Act. I should point out it is this plan, that is the 2003 plan, that then is the subject of the amendment in 2008 that is challenged in these proceedings. So the amendment that your Honours have been taken to that the plaintiffs challenge is an amendment of this plan. The way in which this plan was to operate is significant because you will see there is almost no difference, no relevant difference. Clause 7 at the bottom of page 959 set out the effect on licences under the Water Act and said:

This Plan applies from the date of commencement to those matters that are administered under the Act at that time.

The Act being the Water Act, I am sorry, referred to in clause 2(1).  In effect, it was to apply to the transmogrified entitlements.  Clause 8 over the page identifies the plan as being consistent with the State water management outcomes plan that I have taken your Honours to and notes that Schedule 3 identifies the:

targets applicable to this Plan and how this Plan contributes to those targets.

Schedule 3 is then at page 989 and there is a reference to “Target 1e” and it is said that the level of contribution is “PARTIAL” and that –

This plan establishes as extraction limit of 80% of recharge.

Within the body of the plan then, at page 963, clause 16(1), it is said that:

The overall basis for water sharing in this Plan is the average annual recharge to this groundwater source, estimated to be 120,000 megalitres per year.

Clause 18(1)(b) says that:

Subject to Part 10 Division 2 of this Plan 20% of the average annual recharge to this groundwater source shall be reserved for the environment.

Clause 24(2) then said:

This plan establishes a bulk access regime for the extraction of water under access licences in this groundwater source having regard to:

Relevantly (c):

the requirements for water for extraction under access licences identified under Part 7 of this Plan.

Part 7 is then over the page. Clause 25(2):

At the commencement of this Plan, the requirements identified by water for extraction under access licences within this groundwater source are estimated to be 215,417 ML/yr.

That is the transmogrified 1912 Act licences with a straight megalitre for megalitre conversion converted to access licences under this Act at the commencement of the plan of 215,417 megalitres per year.  Compare that with the recharge rate of 120,000 megalitres per year – nearly double.  Then clause 25(4) said:

Pursuant to section 42(2) of the Act ‑

Now read section 45(1)(b) –

the Minister should reduce the total share components of aquifer access licences in this groundwater source specified in subclause (2) to 125% of the extraction limit determined in clause 27 . . . over the term of this Plan -

Clause 27(2) provided that:

The long‑term average extraction limit for this groundwater source each year of this Plan is the recharge established in clause 16, minus the proportion of recharge reserved as environmental health water in clause 18, and is 96,000 ML/year.

Just to complete the provisions of the plan, clause 52(1) said:

All access licences shall have mandatory conditions in relation to –

relevantly (a), (b) and (c) – I suppose relevantly the whole lot but (a), (b) and (c) give you the flavour– and clause 52(2) said:

All aquifer access licences shall have mandatory conditions to give effect to clause 25, in relation to the amendment of access licence share components.

FRENCH CJ:   That is aquifer access licences.

MR GAGELER:   Aquifer access licences, yes.  So what you had within the scheme of the plan was a long‑term average extraction limit of 96,000 megalitres per year that was set by reference to the recharge of 120,000 megalitres per year, leaving 20 per cent for environmental flows.  Then you had a scheme which over a 10‑year period was to reduce the current water allocations under the 1912 Act when converted into access licences with share components under the 2000 Act from currently 215,000 megalitres per year, that is more than double that figure, down to 125 per cent of that figure.  That was how it was to occur under that plan. 

Just as a matter of detail, that figure of 125 per cent of 96,000 was then to be further restricted by available water determinations.  Your Honours might note clause 29(2)(d), the operation of which is described in the special case, paragraphs 69 and 70.  The idea underlying 29(2)(d) was that if it was founded in practice the amount of water being taken pursuant to access licences exceeded the 96 megalitres per year by a significant amount over a three‑year average, then an available water determination would restrict the taking to the long‑term average extraction limit of 96,000. 

Now, the fundamental point, your Honours, that we get from all of that is that if you look to the nature of the water entitlements that were the subject of the funding agreement as at the date of the funding agreement, that is, 4 November 2005, they were statutory rights sustained subject to the 1912 Act, the 1912 Act being itself sustained subject to the 2000 Act and that under the 2000 Act it was entirely permissible, indeed the entire statutory scheme was structured so as to bring about the effect upon a proclamation under section 55A and a proclamation under section 88A to transmogrify those 1912 Water Act entitlements into entitlements under the 2000 Act and then to reduce those transmogrified entitlements without compensation pursuant to the provisions of a water sharing plan that was designed to bring extraction rates to a long‑term ecologically sustainable level. That is the nature of the entitlements.

Now, the only difference between the reduction in entitlements that would have occurred in accordance with the 2003 management plan and what was to occur in accordance with clause 1.8 of the schedule to the funding agreement had three elements. One was that there is a very slight difference in the overall level of reduction. This is referred to in the special case at paragraph 87. Your Honours will recall that the management plan that I have just taken you to, the 2003 plan, had reduction to 125 per cent of 96,000 megalitres per year with the qualification that an available water determination was to make sure that the actual water extraction over a long‑term average was not to exceed 96,000 megalitres per year. The funding agreement contemplated that the reduction would be to 96,000 megalitres per year, not 125 per cent. That is a very slight difference.

FRENCH CJ:   Did that come out of the project proposal from New South Wales?

MR GAGELER:   Yes, it did.  The second was a matter of timing – and I will come to this in just a moment – that is, that the years having passed there was to be an immediate reduction upon transmogrification rather than a phasing in of reduction over time.  That was facilitated by an amendment to the 2000 Act that I will refer to in a moment.  The third was a change in the methodology for determining licence by licence the amount of reduction and, in essence, it came down to this, that the 2003 methodology was an across the board methodology so everyone received over the 10‑year period a straight percentage reduction, the same percentage reduction in their share components. 

As proposed by the State and as required by clause 1.8 of the funding agreement, what was to be used was a history of use methodology. The precise details were left to be worked out. But the history of use methodology which ended up being reflected in the formula that your Honours have already seen in clause 25C of the plan, as it was ultimately established on 1 February 2008 took in ‑ ‑ ‑

FRENCH CJ:   It was actually the history of extraction, I think, was it not, the term that was used?

MR GAGELER:   Yes, different terminology is used here and there.  The difference is well explained in the special case book at volume 1, pages 92 to 93.  It is paragraphs 43 to 44 and your Honour is absolutely right, “history of extraction” was the preferred terminology. 

It is further explained in quite useful terms in the project description in volume 2, page 292 – this is within New South Wales’ description of the project for which it was seeking funding.  There is a description under heading 2, “Project Description”.  The fourth dot point refers to:

The five gazetted Plans will require some amendment to provide for the revised methodology for entitlement reduction.  Currently, reductions in these Plans are based on across the board cuts.  This will need to be amended to entitlement reduction giving consideration to History of Use (HOU).  Although the revised methodology has been discussed extensively already with stakeholders, further consultation on the detail of this amendment has been built into this proposal.

At page 305 – one sees from 305 through to 308 an explanation of the differences, and there are some examples which your Honour the Chief Justice may or may not wish to work through.  Note at page 302 – this is part of the application for funding, with a part of the proposal as explained by New South Wales in relation to its application for funding – at line 40 or so there is a paragraph:

Should the Australian Government decline to contribute $55 million, the NSW Government will proceed with the current approach for the Namoi of reducing equally the groundwater licence entitlements and with the current arrangements for the provision of financial assistance.  For other systems –

including this one –

the entitlement reduction approach in the current gazetted water sharing plans will be maintained.

So the alternative would have been that the existing plan, or something very close to the existing plan, would have gone ahead.

CRENNAN J:   It seems as though the history of extraction methodology was linked with the Commonwealth funding.

MR GAGELER:   That is right, yes, that was the change.  That was the change because it was seen as appropriate by New South Wales to offer ex gratia payments, if the history of extraction methodology was ‑ ‑ ‑

CRENNAN J:   Going to be higher with the Commonwealth funding.

MR GAGELER:   Yes, which would be higher with Commonwealth funding.

GUMMOW J:   This proposal for ex gratia payments, did that reach any statutory instrument?

MR GAGELER:   No, and your Honour let me say right now, I would not seek to rely on the existence of ex gratia payments as a provision of just terms if just terms are required.  There is half a sentence in our written submissions that might suggest otherwise and I was going to ask your Honours to cross that out in due course.

GUMMOW J:   You had better do that.

MR GAGELER:   Better do that now, we can do it now.  In paragraph 81, the first sentence, please cross out “the structural adjustment payments offered to the plaintiffs”.  Sorry about that.  Your Honours, the only relevant amendment to the 2000 Act after the funding agreement was then the amendment of Schedule 10 to take the form that your Honours have seen behind tab 34 of the third and fourth defendants’ bundle of legislative material.  It is in volume 2, tab 34.

The amendment ‑ your Honours may have it flagged – is page 13 of 30.  It is the amendment to clause 3(1)(a) which is a matter of mechanics and timing.  Your Honours will recall that the Act previously provided for a straight conversion of allocations under the 1912 Act to share components under the 2000 Act and then for the reduction over time through a water management plan.  Here, time having moved on, and this amendment being made, what was facilitated by clause 3(1)(a)(ii) was for an immediate reduction at the time of ‑ ‑ ‑

CRENNAN J:   Sorry, what page are you on?

MR GAGELER:   Tab 34, page 13 of 30.  It is towards the back within Schedule 10.

CRENNAN J:   Yes, I have it, thank you.

MR GAGELER:   This was an amendment which came into effect on 7 December 2005.  The relevant amendment Act was Act No 118 of 2005 and it was this amendment which inserted 3(1)(a)(ii) to say:

if the relevant management plan, and regulations made for the purposes of this paragraph, indicate that a different quantity of water calculated in accordance with a specified methodology may be taken under an access licence issued in relation to the . . . water source to which the management plan applies‑for a different quantity of water calculated in accordance with that methodology‑

to be taken as the quantity under the access licence which was converted upon the making of the proclamations under sections 55A and 88A.  I hope I have explained that.

It was this provision that then permitted the making of the regulations, which are challenged here, in the light of the revised management plan.  The only difference is one of mechanics or timing that is of immediate reduction, time having moved on, as distinct from reduction over time in accordance with the management plan.

BELL J:   At the date of the funding agreement it was the reduction in accordance with the unamended plan?

MR GAGELER:   Yes, that is right.  So at the date of the funding agreement what the Act facilitated was one‑for‑one conversion and then reduction.  The only difference permitted by this amendment is immediate reduction without needing to go through the changes to the management plan.  A change of timing and mechanics, as we see it, not one of substance. 

Now, your Honours, the consequence of all of that is that within the terminology of section 51(xxxi) of the Constitution, accepting that the statutory rights conferred by the 1912 Act water licences were property, that statutory regime which conferred and sustained those statutory rights consisted of the 1912 Act and the 2000 Act. That statutory regime permitted, indeed facilitated, the modification or defeasance of those statutory rights in substantially, and save only as to timing, precisely the way contemplated by the funding agreement.

The case, in our respectful submission, is similar to but stronger than Chaffey, which your Honours decided very recently, but may I ask your Honours just to turn back to two paragraphs in Chaffey very briefly. It is in 231 CLR 651 and there are just two paragraphs to which I wanted to draw your Honours’ attention. At paragraph 25 there is a reference to WMC Resources and the second sentence says:

In WMC, as with Pt V of the Work Health Act, by express legislative stipulation in existence at the time of the creation of the statutory “right”, its continued and fixed content depended upon the will from time to time of the legislature which created that “right”.

In our submission, the case here is even stronger.  If you just take the rights as being under the 1912 Act, then the rights under the 1912 Act were at the relevant time, that is the date of the funding agreement, inherently susceptible of variation by virtue of the operation of the 2000 Act, but, in our submission, it is better to see the rights at the relevant time as being rights that were existing under a statutory scheme that consisted both of the Acts and within that statutory scheme they were inherently capable of variation in substantially the way provided for in the funding agreement. 

That makes the case much closer to Davey and Bienke, the two cases referred to in footnote (55) than the present case.  Of course, we are talking about what could be done within the very scheme that created those rights.  Davey and Bienke, your Honours will recall, were cases that dealt with the reduction of fishing entitlements.

KIEFEL J:    In Davey it was held also that there was no benefit accruing to the Commonwealth, the flipside of the property acquisition argument.  Are you pursuing that?

MR GAGELER:   That is right.  That is another way of looking at it.  This really gives rise to a number of ways of looking at it, but I will come to that in just a moment.  The other point that I wanted to draw from Chaffey is if your Honours would just look at the way in which an argument is dealt with in paragraph 27, it is the argument that is recorded at the end of paragraph 26 to the effect that because the rights under the Northern Territory Act were replacing common law rights, so the argument went, then those new statutory rights should be interpreted as taking on a rather fixed character, fixed and stable character, somehow reflecting the character of the common law rights they were replacing. 

The answer in paragraph 27 is, well, no.  Just because a statutory right replaces a common law right does not mean that that statutory right should be treated as having the characteristics of the common law right.  It is a matter of interpreting the statute.

KIEFEL J:    I think it was in WMC Justice Gummow referred to the licence as in the nature of an immunity in the face of, effectively, prohibitions.

MR GAGELER:   Yes.

KIEFEL J:    Is that what you were alluding to?

MR GAGELER:   Yes. 

GUMMOW J:   You took us to it but I have forgotten it, where is the relevant prohibition section?

MR GAGELER:   At the time?

GUMMOW J:   Yes.

MR GAGELER:   Until the proclamations under sections 88A and 55A of the 2000 Act, it was section 117I of the 1912 Act that was applicable to the Lower Lachlan.

GUMMOW J:   Which went in in 1997.

MR GAGELER:   Yes. 

KIEFEL J:    That section is the offence section.  Is there not also an implied prohibition on the vesting, the taking by the Crown?

MR GAGELER:   That is right, yes.  That must follow, your Honour, yes.  That was section 392(1)(c) and (2) of the 2000 Act.  So it was those two provisions operating in a complementary way.

HAYNE J:   At least some operations of 117I, I think, are traceable to the 1912 Act as originally enacted.  I am not sure of that but I think some operations of 117I can be traced in that fashion.

MR GAGELER:   Your Honour would have to be right because you cannot set up a licensing regime without a prohibition.

HAYNE J:   In particular, I had in mind the breach of condition aspect of 117I was, I think, picked up in the old Part 5.

MR GAGELER:   Your Honour is doubtless right.  I cannot point to the particular provision.

HAYNE J:   It may be of value, recognising the particular form of 117I is brought in by the 1997 amendments, to understand what, if any, of the operations for which that new made provision find reflection in earlier versions of the legislation.

MR GAGELER:   With the division?

HAYNE J:   I suspect you are looking down the table at the Solicitor for New South Wales.

MR GAGELER:   Yes.  He was going to deal with those historic - I said I would do the snapshot, he would do the history.  But if your Honour is assisted he will no doubt assist you with that.  Your Honour needs to bear in mind also that the licences at this stage – that is as at the relevant date, 4 November 2005 – were all licences which were being issued for a short time.  They were all five‑year licences renewed.  The history is useful and instructive, but one has to remember that the licences that were in existence at that time were all post‑1997 licences – renewed post‑1997.

HAYNE J:   Yes.  The 1912 licences were limited as to time, albeit quite lengthy.

MR GAGELER:   That is right.  Your Honours, that is the inherently susceptible variation point.  It is within the Chaffey principle very, very close to Davey and Bienke, as we see it.  If I can take your Honours to some passages in Davey and Bienke - I will take your Honours to one passage in Davey 47 FCR 151 at 165, a case involving the reduction of units of fishing capacity in accordance with a fishery management plan. It is said in the joint judgment of Chief Justice Black and Justice Gummow, paragraph C:

In the instant case, the units may be transferred, leased, and otherwise dealt with as articles of commerce.  Nevertheless, they confer only a defeasible interest, subject to valid amendments to the NPF Plan under which they are issued.  The making of such amendments is not a dealing with the property; it is the exercise of powers inherent at the time of its creation and integral to the property itself.

Then the additional point that your Honour Justice Kiefel mentioned, the relevant paragraph:

confers no proprietary benefit upon the Commonwealth or a third party.  And instead of taking away something the fishermen possessed, it merely alters the statutory creatures in accordance with the statutory scheme creating and sustaining them. 

Those words apply as a perfect description, in our submission, of what ‑ ‑ ‑

KIEFEL J:   Do you say that there is no proprietary benefit even if the alteration is such as to amount to a cancellation of an entitlement?  Would you say that just does not form part of your argument?

MR GAGELER:   I would not have to go that far ‑ ‑ ‑

KIEFEL J:   If you are looking at something taken away.

MR GAGELER:   I would not have to go that far because we are talking about the reduction of shared components of the entitlement, not the taking away of the entitlement entirely.  The cancellation of licences was really dealt with under separate statutory provisions, but we are not concerned with that in the present case, your Honour.  So the inherent defeasibility, I am not suggesting, goes to dealing with them in any way at all, but the inherent defeasibility certainly goes to reducing the share components in a manner in which they were contemplated by the funding agreement.  I just do not have to make the wider argument. 

So that is the first point which we have developed in our written submissions a little, inherently defeasible, and the other point is this and it is an important point.  If you take the Lower Lachlan groundwater system as simply representative of the other groundwater systems that were the subject of the funding agreement ‑ ‑ ‑

GUMMOW J:   Just going back to Davey for a minute ‑ ‑ ‑

MR GAGELER:   Yes, your Honour.

GUMMOW J:   I think the critical or a critical provision was section 8 of the Act, which is set out on page 156 at letter D.  The Minister was empowered to forbid the taking of the prawns in certain areas.  He had done so unless the scheme that complied with.

MR GAGELER:   Yes.  The analogy between that scheme and the present is very close, your Honour.  The other point is this, and it is a complementary point, your Honours.  You look at this water source, as you could look at any of the water sources here, what you have is a finite natural resource which is currently, or at the time of the agreement, grossly overallocated and as you had a recharge rate of 120,000 megalitres per year – that is a scientifically objectively measurable rate – you responsibly form an assessment that the ecologically sustainable long‑term yield was 96,000 megalitres per year and you find that there are licences, currently entitlements, to take water up to, indeed exceeding 215,000 megalitres per year. 

What do you do? What is happening here? You have a scheme that has as its sole purpose the proportionate reduction of those existing entitlements to the ecologically sustainable level. That is it. That is all that was contemplated by the funding agreement, expressly clause 1.7. That is the object. Clause 1.8, the way in which that object was to be achieved.

Leaving aside entirely the inherent defeasibility point which is sufficient in itself, that aspect of the scheme, in our submission, gives rise to other ways in which this cannot properly be characterised as an acquisition of property.  One, going back to your Honour Justice Kiefel’s observation, as in Davey and Bienke, the reduction of entitlements from the old to the new conferred no correlative benefit on someone else.  There was not an acquisition of property, even if the property was not inherently defeasible.  There was no acquisition.  It was simply an extinguishment – a proportionate extinguishment.  Nobody was correlatively better off as a result of anyone losing part of their licence.  That is in Davey in that short passage to which we have just gone.

It is even more strongly in Bienke 63 FCR 567 at 586 to 587, the subsequent Full Federal Court decision dealing with the same process of reductions. This is something we have dealt with in our written submissions at paragraphs 69 to 74, the point being not acquisition, extinguishment. The second point arising from that fundamental need to reduce an over‑allocated finite natural resource is that the reduction of entitlements from the old to the new can quite properly be characterised as a genuine adjustment of competing rights to the same finite natural resource. Again, that language is used in a number of cases as a description of a sort of law which will not be characterised as with respect to the acquisition of property. We have developed that in our written submissions in paragraphs 58 to 68.

The third point is this.  The substitution of old entitlements, which everybody could not possibly use because there was not enough water to go round - substitution for those old entitlements of reduced entitlements at a sustainable level in the circumstances, in our respectful submission, ought be characterised if it came to it as the provision of just terms.

FRENCH CJ:   That is the point that, I think, Justice Burchett took in Davey, did he not?  He said it is nothing more really than an inevitable consequence of the reduction of the available resource.

MR GAGELER: That is right and let me just repeat we place no emphasis at all – no reliance at all – on the ex gratia payment. We accept that if just terms are required by the operation of section 51(xxxi) then they have to be provided by law. It is the straight substitution of sustainable entitlement for something that could not possibly have been sustained that, in our submission, gives the just terms.

We have dealt with that in paragraphs 75 to 81 of our written submissions, paragraph 81 now having been modified.  May I, in that connection, draw your Honours’ attention to just one short passage in
Smith v ANL. The passage is 204 CLR 493 at page 512, paragraph 48 in the joint judgment of your Honour Justice Gummow and Justice Gaudron, second sentence paragraph 48:

It is trite that the decisions of this Court allow to the Parliament a measure of latitude in such matters.

There is then a quotation from Grace Bros where it was said by Justice Dixon:

Under that paragraph the validity of any general law cannot, I think, be tested by inquiring whether it will be certain to operate in every individual case to place the owner in a situation in which in all respects he will be as well off as if the acquisition had not taken place.  The inquiry rather must be whether the law amounts to a true attempt to provide fair and just standards of compensating or rehabilitating the individual considered as an owner of property, fair and just as between him and the government of the country.

One could substitute the government of the country for the government of the country there fair and just as between him and other persons in a like situation which is all that happened here. So, your Honours, for all of those reasons, in our submission, assuming section 51(xxxi) to be in some way relevant, what was required by clause 1.8 of the funding agreement as a condition of payment under clause 4.1 of the funding agreement cannot properly be characterised within the terminology of section 51(xxxi) as an acquisition of property otherwise than on just terms.

If that is right, your Honours, the foundation for the plaintiff’s argument falls away.  Question 1 of the special case should be answered no.  The Court should decline to consider any other constitutional question that might potentially be raised and to do so would be to accord with the established practice of the Court.  Your Honour Justice Crennan in this respect in the Wurridjal Case usefully collected the incredibly long list of examples of that practice being followed.  I will just give the reference, Wurridjal 252 ALR 232 in paragraph [355]. In our respectful submission, that really should be the end of the case.

GUMMOW J:   The trouble with the questions is that they do not throw up in a discrete form the point you have been making to us.

MR GAGELER:   If I am right ‑ ‑ ‑

GUMMOW J:   I know if you are right it follows that you do not really need to answer (a) and (b).  That is what I am trying to get at.

MR GAGELER:   No, we do not.  Just say no, just say no. 

GUMMOW J:   I think one might need some form of speaking answer, I think.

MR GAGELER:   Possibly, your Honour, yes, which we could formulate if your Honour would be assisted by that.

HAYNE J:   Well I, for my part, would be assisted to know what form of answer you are contending for, Mr Solicitor, and if you say a speaking answer is an alternative I would be assisted by having the draft.

MR GAGELER: Yes, that is what I am offering. Your Honour, if it is not a contradiction in terms, what I would do is put the speaking answer in writing. Now, your Honours, if I am wrong, I need to go on, I suppose. So if what was required of the State under the funding agreement as a condition of payment by the Commonwealth was properly characterised as an acquisition of property otherwise than on just terms, then we agree with the plaintiffs that the answer to both parts of question 1 of the special case turns entirely on the scope and the interaction, if any, of section 51(xxxi) on the one hand and section 96 of the Constitution on the other.

That is, it turns on whether the legislative power of the Commonwealth under section 96 of the Constitution, the traditional view, or under section 51(xxxvi) of the Constitution read with section 96, it matters not for present purposes, extends to the grant of financial assistance to the State for the purpose of the State acquiring property otherwise than on just terms. That is the question as the parties see the question.

If the answer to that question is no, then we would accept that the CEO lacked statutory capacity to enter into the funding agreement, and I will just explain that in a moment, and we would also accept that the Commonwealth lacked executive power to enter into the funding agreement. 

In relation to the capacity of the CEO, the capacity of the CEO as a statutory officer was limited to the functions in section 24 of the National Water Commission Act relevantly limited to administering financial assistance. Financial assistance there and in section 42 must be read down, if necessary, by reference to section 15A of the Acts Interpretation Act to financial assistance which it is within Commonwealth legislative power to provide.  That is why we would accept that the CEO would have lacked the capacity to enter into the agreement in those circumstances so far as ‑ ‑ ‑

GUMMOW J:   In what circumstances, would have lacked in what circumstances?

MR GAGELER: Assuming what was required of the funding agreement as a condition of payment by the Commonwealth was an acquisition of property, and assuming that the power of the Commonwealth Parliament to provide financial assistance to a State is limited by section 51(xxxi) such that there cannot be a payment for the purpose of the Commonwealth acquiring property without just terms, then the financial assistance contemplated by the Act in respect of payments to States could not extend that far. That is what we are accepting and so far as the executive capacity of the Commonwealth to enter into the agreement is concerned, by a slightly different route, one achieves substantially the same result.

In Hughes 202 CLR 535 at paragraph 38 there is a quotation with approval from Justice Mason’s judgment in Duncan’s Case – it is really just the last sentence:

FRENCH CJ:   Well, there is nothing about the agreement in any legislation, is there?

MR MITCHELL:   No.

FRENCH CJ:   Or in any appropriation.

MR MITCHELL:   No.  Even when one comes to look at what the Minister may have believed to the extent that that was relevant, to say that he believed that the agreement was not invalid itself perhaps disguises the question as to what particular belief the Minister may have had or not have had about the legal effect of the agreement.  So for those reasons we say that a question for the Court to address is at least what is meant by the term “validity” in this context and what legal effect that the agreement would otherwise have is denied or said to be denied to it.

If we assume for the moment then that it did create rights and obligations one then looks to the nature of the executive power at least that was available to be exercised.  We say that one aspect, quite apart from any statute, was the executive power which the Commonwealth has to enter into agreement with State Governments.  We say it is significant in this case that the funding agreement was reached with a State because any relevant constraint in the executive power must have its basis in the respective positions of the State and Commonwealth Governments.

We note some of the authorities to that effect at paragraph 9 of our written submissions and in particular, a quote from your Honours, Justices Gummow, Crennan and Bell in Pape’s Case.  Your Honour, I notice the time.

FRENCH CJ:   How much longer do you think you will be, Mr Mitchell?

MR MITCHELL:   I would have thought about 10 minutes.

FRENCH CJ:   Yes, and do we have a sense of how much longer the other interveners are going to be?

MR MITCHELL:   I do not think I do know, your Honour.

MR SOFRONOFF:   .....

FRENCH CJ:   Thank you, Mr Sofronoff.

MS TATE:   …..30 minutes, your Honour.

FRENCH CJ:   Thank you, and Mr Hinton.

MR HINTON:   …..

FRENCH CJ:   All right.  Well, perhaps you can continue with your argument now, Mr Mitchell.

MR MITCHELL: Certainly, your Honour. We say that therefore there is no reason – putting aside section 51(xxxi) for the moment and I will come back to that – to limit the capacity of the Commonwealth Executive to enter into agreements with the States. Even if the Commonwealth’s power to enter into agreements with other entities or persons is so limited its power to do so with State Governments is not federally restrained, to use a phrase which Chief Justice Barwick employed in Johnston v Kent 132 CLR 164, particularly at 169 to 170, which I need not take your Honours to.

That is not to say that we do not recognise limits in the Commonwealth’s power to enter into contracts, but that those limits arise from the federal nature of the Constitution and, in particular, its provision for Commonwealth and State Governments acting as independent entities. But those federal considerations provide no reason to limit the executive power of the Commonwealth to reach contractual agreements with the States.

We would say that there is nothing in the National Water Commission Act, even if that Act also provided authority for the Commonwealth to enter into the agreement which abrogates that executive power of the States, and in that regard we would say that the Act is to be construed with the presumption that it is not intended to displace Commonwealth executive power, a presumption which your Honour the Chief Justice recognised in Ruddock v Vadarlis 110 FCR 491, particularly at paragraphs 181 to 185 and 201, which again I need not take your Honours to. Of course, in the event that the plaintiffs were correct in the contention that the National Water Commission Act is invalid, then that Act could not operate to abrogate executive power.

We would say that there is a distinction to be drawn between firstly, the executive capacity of the Commonwealth to enter into a contract, and secondly, the authority of an agent to bind the Commonwealth in that respect.  We do not see anything in the National Water Commission Act which would detract from the capacity of the Commonwealth to enter into a contract.

That then brings me to section 51(xxxi) and the question as to whether that imposes a limitation on Commonwealth executive power, particularly where that power does not involve the administration of an act. In our submissions, there are three considerations which combine to lead to the view that the executive power in that respect is not so restricted. Firstly, we say there is no Commonwealth executive power to compulsorily acquire property or authorise others to do so except by statutory authority, with the possible exception of being the so‑called “war prerogative”, or what in the United Kingdom would be referred to as a “war prerogative”, and even in that case, there is no power to resume property without paying compensation. Again, I need not take your Honours to the authority, but this Court recognised that statutory basis of the power in Walker Corporation v Sydney Harbour Foreshore Authority 233 CLR 259 at paragraph 29.

Secondly, we say that section 51(xxxi) is in its terms cast as a limitation only on the legislative power of the Commonwealth and we would adopt what Justice McHugh said, which we have set out at paragraph 15 of our written submissions, in WMC – that is, although it may be apt to describe section 51(xxxi) as a constitutional guarantee, it does operate not by positive provision, but as a limitation on power and does not have the same effect as if it had read “No person shall be deprived of his or her property, except on just terms”.

Thirdly, we would say that the fact that a body enters into a contract or arrangement with the Commonwealth should not lead to a contraction of the powers which that other body would otherwise have.  That is, the State has the capacity recognised in Durham Holdings v New South Wales 205 CLR 299 to acquire property other than on just terms and it does not

lose that capacity by reason of having entered into an agreement with the Commonwealth.  If it please the Court, those are our submissions.

FRENCH CJ:   That you, Mr Mitchell.  The Court will adjourn until 10.15 am tomorrow.

AT 4.24 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 27 AUGUST 2009