IN THE ESTATE OF WENHAM
[2023] SASC 44
SUPREME COURT OF SOUTH AUSTRALIA
(Testamentary Causes Jurisdiction)
IN THE ESTATE OF WENHAM
[2023] SASC 44
Judgment of the Honourable Justice Stanley
31 March 2023
SUCCESSION - ADMINISTRATION OF ESTATE - DISTRIBUTION - INTEREST OF BENEFICIARY IN PARTICULAR PROPERTY
This is an application by the executor of the deceased’s estate seeking advice and direction pursuant to s 69 of the Administration and Probate Act 1919 (SA).
The application relates to a water licence granted to the deceased under the Natural Resources Management Act 2004. There is a dispute between the first and second respondents as to the right to the water licence under the will, as modified by a Heads of Agreement between the two respondents. Neither the will nor the Heads of Agreement makes express provision for the water licence.
The applicant seeks a binding determination of the issue.
Held:
1. The applicant is advised and directed that he should get in the water licence and distribute it to the first respondent in accordance with the gift in clause 3.5 of the will.
2. A binding determination in relation to the matter is made pursuant to s 69(4) and (6) of the Administration and Probate Act 1919 (SA).
3. The question of costs is reserved.
Administration and Probate Act 1919 (SA) s 69; Natural Resources Management Act 2004 (SA) ss 146, 150; Landscape South Australia Act 2019 (SA) ss 2, 3(1), 127(1)(a), 132, 134(1), Sch 5 cl 101(4); Water Resources Act 1997 (SA); Wills Act 1936 (SA) s 4, referred to.
Farrelly v Phillips (2017) 128 SASR 502; King v Perpetual Trustee Company Ltd (1955) 94 CLR 70; Pearson v Spencer (1863) 3 B&S 761; Phillips v Low [1892] 1 Ch 47; Talia Farms v Minister for Environment [2021] SAERDC 33; Wood v Gaynon (1761) Amb 395, considered.
IN THE ESTATE OF WENHAM
[2023] SASC 44Testamentary causes jurisdiction
STANLEY J:
Introduction
This is an application pursuant to s 69 of the Administration and Probate Act 1919 (SA) (the Act) for judicial advice and direction in the estate of the late Ian Royce Wenham (the deceased). The applicant is the executor of the deceased’s estate pursuant to a grant of probate made on 6 November 2020.
The deceased died on 23 February 2017. He made his last will on 2 April 2016 (the will). The principal beneficiaries under the will are, the deceased’s son Jodi Scott Hanak (Mr Hanak), and Alan Gary Dalitz (Mr Dalitz). On 18 August 2000 Mr Hanak and Mr Dalitz made a binding agreement varying the terms of the will as between themselves. That agreement was recorded in a document entitled “Heads of Agreement” (Heads of Agreement).
The application relates to a water licence granted to the deceased under the Natural Resources Management Act 2004 (SA) (NRMA) being water licence 118583-0 (the water licence). The NRMA was subsequently repealed by the Landscape South Australia Act 2019 (SA) (LSA Act). There are two copies of the water licence in evidence. Only one appears to be complete.[1] Notwithstanding the death of the deceased on 23 February 2017, the licences in evidence identify him as the licence holder. The evidence is that the water licence has been used in this case in the operation of a dairy farm owned by the deceased. The water licence is mainly for taking underground water. It contains licence conditions. The first condition is that the water allocation on the licence “must only be used on the land described below”. The licence specifies that the only land upon which the water allocation must be used is the land gifted to Mr Dalitz pursuant to clause 3.5 of the will, namely, what is known as Hope Farm (Hope Farm).
[1] Annexure JSH2 to the affidavit of Jodi Scott Hanak of 1 August 2022.
Clause 3.5 provides:
To give to ALAN GARY DALITZ all my right, title and interest in Allotment 560 Filed Plan 165279 in the area named Wattle Flat Hundred of Myponga being the whole of the land comprised in Certificate of Title Volume 5698 Folio 98 and all my right, title and interest in Section 254 Hundred of Myponga in the area named Wattle Flat being the whole of the land comprised in Certificate of Title 5686 Folio 390 and the whole of the land comprised in Allotment 559 Filed Plan 165278 in the area named Wattle Flat Hundred of Myponga comprised in Certificate of Title Volume 5684 Folio 95 and all my right, title and interest in Section 321 and 323 Hundred of Myponga in the area named Wattle Flat Allotment 100 Deposited Plan 37586 in the area named Wattle Flat Hundred of Myponga comprised in Certificate of Title Volume 5154 Folio 631 and all my right, title and interest in Section 1056 Hundred of Yankalilla in the rea named Hay Flat being the whole of the land comprised in Certificate of Title Volume 5354 Folio 670 and all dairy farming plant and equipment owned by me at my death.
There is a dispute between Mr Hanak and Mr Dalitz as to the right to the water licence under the will, as modified by the Heads of Agreement. Neither the will nor the Heads of Agreement makes express provision for the water licence.
There are a number of other issues in relation to the administration of the estate, including costs, upon which the parties are unable to reach agreement and in respect of which the executor seeks advice and direction. However, the parties were not in a position to deal with these matters when the application came before me for hearing. As a result this hearing was confined to the question of who is entitled to the water licence on the proper construction of the will. The applicant seeks a binding determination of this issue.
The issue
The issue to be determined is the correct construction of clause 3.5 of the will and the entitlement to the water licence. Mr Dalitz contends that clause 3.5 gifts the water licence to him, either because the deceased intended that the licence followed the gift of Hope Farm or formed part of the dairy farming plant and equipment. Mr Hanak contends that the deceased had no testamentary intention to gift the water licence to Mr Dalitz and that it falls into the residue of the deceased’s estate.
The evidence
The Court admitted the following affidavits:
·Affidavit of Mark Peter Jappe of 11 July 2022;
·Affidavit of Andrew John Colman Evans of 7 November 2022;
·Affidavit of Mark Peter Jappe of 8 November 2022;
·Affidavit of Alan Gary Dalitz of 14 October 2022;
·Affidavit of Jodi Scott Hanak of 1 August 2022 except for paragraphs 25-33 inclusive and the second sentence of paragraph 8;
·Affidavit of Jodi Scott Hanak of 27 October 2022;
·Pages 9-30 inclusive of annexure “PC Affidavit 1” to the affidavit of Paul Cooper of 20 December 2022;
·Annexure “PC Affidavit 2” to the affidavit of Paul Cooper of 20 December 2022.
Non one sought to cross-examine any of the deponents.
The deceased’s estate
As at the date of his death, the deceased was the registered proprietor of land at 61 Wenhams Road, Wattle Flat, being the whole of the land comprised and described in certificate of title register book volume 6168, folios 947, 946, 945 and 944 otherwise known as Hope Farm;[2] at 1056 Bethel Road, Hay Flat, being the whole of the land comprised and described in certificate of title register book volume 6168, folio 950, known as Laws (Laws);[3] at 182 Main South Road, Yankalilla, being the whole of the land comprised and described in certificate of title register book volume 5376, folio 103 (Yankalilla); and at 296 Kemmiss Hill Road, Inman Valley, being the whole of the land comprised and described in certificate of title register book volume 6168, folio 949 and 948 known as Outback (Outback).[4]
[2] Mr Hanak refers to Hope Farm as the Wenhams Road property.
[3] Mr Hanak refers to Laws as the Bethel Road property.
[4] Mr Hanak refers to Outback as the Kemmiss Hill Road property.
The water licence
At common law water was not capable of being the subject of property or being granted. The Water Resources Act 1997 (SA) enshrined a scheme to regulate the use of water through a system of licencing. The NRMA continued this statutory regime. The holder of a water licence was authorised to take water from a prescribed water course specified in the licence. Water licences granted under the NRMA specified the part or parts of the resource from which water could be taken; were endorsed with a water allocation; and where the allocation comprised one or more components, set out the amount of water allocated to each component. A water licence remained in force until terminated and was subject to such further conditions as endorsed by the Minister. The Minister could grant water licences endorsed with a water allocation specifying the water resource and the volume that could be taken.[5]
[5] Talia Farms Pty Ltd v Minister for Environment and Water [2021] SAERDC 33 at [5]-[10].
The NRMA granted bundled rights to water by providing all necessary authority in one licence. In 2009 the NRMA was amended to replace water licences with four necessary approvals.[6]
[6] Ibid.
First, a transferable ‘water licence’, entitling access to a share of water from a consumptive pool; a ‘water access entitlement’; second, a transferable ‘water allocation’, specifying the volume a holder of a water access entitlement is entitled to take;[7]third, a site specific ‘water resource works approval’ detailing the nature and extent of approved works, the water resource to which those approved works related, the place at which those approved works could be located and the extent to which water might sustainably be extracted from that location; fourth, a site specific ‘site use approval’ recording the purpose for which water could be used, the place it could be used, the extent, manner and rate of use and a limit on the maximum quantity of water to be applied to the place to which it relates.
[7] Landscape South Australia Act 2019 (SA) ss 2, 3(1), 127(1)(a), 132, 134(1) (‘LSA Act’)
Under the unbundled regime, the amount of water any person could take, and the use that person could make of that water at any place, was dependent upon the combination of rights granted by the four approvals.[8]
[8] Talia Farms v Minister for Environment [2021] SAERDC 33 at [6]-[10].
As at the date of death of the deceased the NRMA provided that a water licence is personal property[9] and can be traded.[10] A licence “passes to another” in accordance with “any other law”. However, a condition of the licence is that the water allocation on the licence must only be used on specified land.
[9] Natural Resources Management Act 2004 (SA) s 146(8) (‘NRMA’).
[10] Ibid s 150.
At the date of the deceased’s death a water licence provided:
… an entitlement to the holder of the licence to gain access to a share of water available in the consumptive pool or consumptive pools to which the licence relates, as specified by the licence and after taking into account any factor specified by the relevant water allocation plan or prescribed by the regulations (and this entitlement will be called a water access entitlement).[11]
[11] Ibid s 146(2).
The NRMA provided that a water licence is personal property. Section 146(8) provided that:
A water licence is personal property and may pass to another in accordance with the provisions of this Act or, subject to this Act, in accordance with any other law for the passing of property.
In my view the reference in s 146(8) to “any other law for the passing of property” includes the law of succession. Accordingly, subject to the terms of the NRMA, a water licence was property to which the deceased was entitled as at the date of his death, capable of being devised, bequeathed or disposed of by his will.[12]
[12] Wills Act 1936 (SA) s 4.
The entitlement granted under a licence was, inter alia, subject to the conditions attached to the licence.[13] As I have observed, the water licence was subject to a condition that the water allocation on the licence could only be used on certain identified land. In this case that land was Hope Farm.[14] However, that entitlement could be transferred to another person[15] and used on other land.
[13] NRMA s 146(3)(c).
[14] There are two versions of the licence conditions as extracted from the registers kept under the NRMA and subsequently the LSA Act. The two versions are substantially the same.
[15] NRMA s 150.
Accordingly, I accept that the water licence is both tradeable and a valuable asset.
On 1 July 2020 the LSA Act came into force. It repealed the NRMA. The water licence continued and continues to have effect as if it had been issued under the LSA Act.[16]
[16] LSA Act Sch 5 cl 101(4).
The will and Heads of Agreement
Clause 3.4 of the will gifted Outback to Mr Hanak. Pursuant to clause 3.5 of the will the deceased gifted Hope Farm and Laws to Mr Dalitz.[17] In addition, by clause 3.5, the deceased gifted to Mr Dalitz all his “dairy farming plant and equipment owned by me at my death”. Mr Hanak is the sole residuary legatee under the will. As I have noted, the will does not expressly refer to the water licence or any water licence. Neither does the Heads of Agreement. It is implicit in the Heads of Agreement that, subject to its terms, the executor is to administer the deceased’s estate in accordance with the terms of the will.
[17] Clause 3.5 does not expressly refer to the land gifted to Mr Dalitz as Hope Farm and Laws but describes the land which includes Hope Farm and Laws in accordance with the registered description of that land found on the Title.
Principles of construction of wills
In Farrelly v Phillips[18] I set out the principles applicable to the construction of wills in the following terms:[19]
[18] (2017) 128 SASR 502.
[19] Ibid at 508-511 [23]-[34].
Principles of construction of wills
The task of a court when construing a will is to discover the intention of the testator. In Perrin v Morgan, Lord Romer said:
I take it to be a cardinal rule of construction that a will should be so construed as to give effect to the intention of the testator, such intention being gathered from the language of the will read in the light of the circumstances in which the will was made.
Lord Simon said:
… [t]he fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case — what are the “expressed intentions” of the testator.
In Fairbairn v Varvaressos Campbell JA cited with approval the dicta of Bryson J in Perpetual Trustee Co Ltd v Wright, where his Honour said:
… one’s task is, first, if it be possible, to ascertain, what was the basic scheme which the deceased had conceived for dealing with his estate, and, then, so to construe the will as, if it be possible, to give effect to the scheme so revealed.
In Muir v Winn Bryson AJ observed:
It is necessary to seek to understand the scheme of a testator’s dispositions. Where the terms of the will are perfectly clear search for the scheme may be of little use, but where the language is obscure or the effects of the literal reading and the reasoning impliedly underlying it are startlingly unlikely, as in this case, the scheme of dispositions is very important.
The appellant seeks to rely upon the so-called “armchair principle”. This was described in Allgood v Blake by Blackburn J as follows:
The general rule is that, in construing a will, the Court is entitled to put itself in the position of the testator, and to consider all material facts and circumstances known to the testator with reference to which he is to be taken to have used the words in the will, and then to declare what is the intention evidenced by the words used with reference to those facts and circumstances which were (or ought to have been) in the mind of the testator when he used those words … the meaning of words varies according to the circumstances of and concerning which they are used.
There are two qualifications to the armchair principle. First, when the court considers the circumstances known to the testator, it is only the circumstances existing at the time the testator made his will that may be considered. Second, extrinsic evidence cannot be used to make words in a will bear a meaning which on the face of the will they are incapable of conveying. This is sometimes described as the “incapable meaning rule” or the “plain meaning rule”. In relation to the armchair principle, Lord Romer observed in Perrin v Morgan, that when seated in the armchair the court is not entitled to make a fresh will for the testator merely because it strongly suspects that the testator did not mean what he plainly said.
In Marley v Rawlings, the Supreme Court of the United Kingdom has recently approached the construction of wills on the same basis as the interpretation of contracts. The Court adopted the objective theory to ascertaining the testator’s intention, which it found to be consistent with the armchair principle. Lord Neuberger, with whom Lord Clarke, Lord Sumption and Lord Carnwath agreed, said:
When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. As Lord Hoffmann said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd, “No one has ever made an acontextual statement. There is always some context to any utterance, however meagre.” To the same effect, Sir Thomas Bingham MR said in Arbuthnott v Fagan that “courts will never construe words in a vacuum”.
Of course, a contract is agreed between a number of parties, whereas a will is made by a single party. However, that distinction is an unconvincing reason for adopting a different approach in principle to interpretation of wills: it is merely one of the contextual circumstances which has to be borne in mind when interpreting the document concerned. Thus, the court takes the same approach to interpretation of unilateral notices as it takes to interpretation of contracts: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd.
…
[T]he approach to the interpretation of contracts … is therefore just as appropriate for wills as it is for other unilateral documents. This may well not be a particularly revolutionary conclusion in the light of the currently understood approach to the interpretation of wills (see eg Theobald on Wills, 17th ed (2010), chapter 15 and the recent supplement supports such an approach as indicated in Royal Society for the Prevention of Cruelty to Animals v Sharp). Indeed, the well known suggestion of James LJ in Boyes v Cook that, when interpreting a will, the court should “place [itself] in [the testator’s] arm-chair”, is consistent with the approach of interpretation by reference to the factual context.
[Citations omitted].
Marley v Rawlings has been applied in a number of single judge decisions in Australia.
This approach is conducive to coherence in the law of construction of instruments consistent with the approach taken in the joint reasons of Heydon and Crennan JJ in Byrnes v Kendle.
While the task of the Court in construing the will is to ascertain the intention of the testatrix, the Court must take care to avoid interpreting the will on the basis of some a priori assumption about the testatrix’s intentions. The surest guide to the testatrix’s intention is the language of her will. Her expressed intentions are embodied in its text read in light of the surrounding circumstances in accordance with the armchair principle. The search is for her expressed intentions, not what she meant to say, but what she actually said.
In that context, a question arises as to whether, in construing the will, the Court can have regard to earlier drafts of the will. In my view it is open to the Court to consider evidence of earlier drafts of the will in order to assist in ascertaining the testator’s expressed intention. I consider that such evidence is admissible as part of the surrounding circumstances. While it was once the case at common law that evidence of draft contracts was not admissible for constructional purposes, that no longer appears to be the position. In Royal Botanic Gardens and Domain Trust v South Sydney City Council the High Court had regard to various drafts of a deed that passed between the parties in order to construe the concluded deed. The drafts were admitted as evidence of surrounding circumstances.
In accordance with the approach in Marley v Rawlings the Court should apply those principles applicable to the construction of contracts to the construction of a will for the purposes of ascertaining the expressed intention of the testator. In Marley v Rawlings Lord Neuberger said it was open to the court to consider evidence of drafts of a will which the testator may have approved or caused to be prepared for the purposes of interpreting the will or a provision of the will. However, his Lordship reached that conclusion on the basis of an express statutory provision in the Administration of Justice Act 1982 (UK) which permitted the court to receive extrinsic evidence of the testator’s intention to assist in interpretation. No equivalent provision is to be found in the Wills Act 1936 (SA). Nonetheless, notwithstanding the absence of an equivalent statutory provision I am satisfied that it is permissible to receive draft wills as evidence of surrounding circumstances for the purposes of ascertaining the testator’s expressed intention. In Byrnes v Kendle Heydon and Crennan JJ held that evidence of pre-contractual negotiations is admissible for the purpose of drawing inferences about what the contract meant where it demonstrates knowledge of surrounding circumstances. In relation to the constitution of wills, that would require, however, evidence that the draft will was approved by the testator or that the testator caused the draft to be prepared in particular terms so as to throw some light on his intention. So the evidence of draft wills, like pre-contractual negotiations, is only admissible where it demonstrates knowledge of surrounding circumstances.
[Citations omitted].
The armchair principle permits the admission of evidence of the factual matrix in which a testator made his or her will to explain what the testator wrote, and to show the meaning of his or her words. In King v Perpetual Trustee Company Ltd the High Court said that it is from the words of the will that the intention of the testator must be ascertained, aided only by such facts as existed and were known to the testator at the date of the will which it is permissible to take into account in interpreting the will’s language.[20]
[20] (1955) 94 CLR 70 at 78.
In addition to the principles applicable to the construction of wills, there is a rule that along with the subject matter of any gift in a will, there impliedly go, as accessory to the main gift, all rights and benefits which are essential to the reasonable enjoyment of the subject matter in the state in which it is given.[21] This implication does not necessarily arise from the construction of the will but from the circumstance of necessary dependence shown by the facts of the case. When all the surrounding circumstances which may legitimately be the subject of inquiry in accordance with the armchair principle are known, the result may be different or the extent of the implied gift controlled.[22]
[21] Phillips v Low [1892] 1 Ch 47 at 50-51.
[22] W J Williams, Williams on Wills (Butterworths, 7th ed, 1995) 601.
Submissions
Mr Hanak contends that the terms of clauses 3.4 and 3.5 of the will describe the classic legal formulation of a registered interest in real property. That description does not include personal property, particularly a water licence. The plain and usual meaning of clauses 3.4 and 3.5 is that they concern a gift of an interest in land and do not provide the gift of the separate asset that is the water licence. Clause 3.5 includes an additional bequest of dairy farming plant and equipment. This is significant for two reasons. First, because it reflects an understanding on the part of the testator that personal property did not pass with the land. Second, that a water licence, unlike plant and equipment, is an intangible asset. It does not meet the description of plant and equipment.
Mr Hanak submits that it should be inferred that in the past the deceased applied for and was granted the water licence and subsequently paid the annual licence fee. It follows that the deceased must have understood that the licence is personal property discrete from real property and was tradable as such given that the statutory regime described above had been in existence since 2004. Accordingly, the true construction of the will is that the testator did not gift the water licence to Mr Dalitz and it fell into the residue.
Mr Dalitz contends that the water licence was necessarily gifted to him pursuant to clause 3.5 on the basis that the deceased clearly intended to give Hope Farm to him in the condition that it was in at the deceased’s death i.e., as an operating dairy farm. Not only did the deceased gift the land to Mr Dalitz pursuant to clause 3.5, he also made a bequest of all dairy farming plant and equipment owned by him at his death to Mr Dalitz. The necessary implication arising from this gift, in conjunction with the devise of the land, is that the deceased intended that Hope Farm should continue to be operated as a dairy farm by Mr Dalitz. This implication is reinforced by the evidence that the use of underground water extracted from the bore located on Hope Farm, pursuant to the water licence, is integral and essential to the operation of the dairy farm. As a result, Mr Dalitz cannot properly enjoy the benefit of the gift of Hope Farm and the dairy farming plant and equipment without also having the right to use underground drawn water pursuant to the water licence. He submits this implication is reinforced by the condition of the licence that the water allocation could only be used on Hope Farm.
Findings of fact
Having regard to the affidavit evidence, I find the deceased was a farmer who owned farmland in and around Inman Valley and a residential property at Yankalilla. Mr Hanak is his only child. Mr Dalitz is a sharefarmer who, since 1998, farmed the deceased’s farmland during the deceased’s lifetime when he was no longer physically able to farm, in accordance with a share farming agreement and since his death pursuant to the terms of a lease.
After a period of ill health, the deceased moved into a residential care facility in 2013. After the deceased went into care Mr Dalitz paid the annual water licence fee.
I find that in 2003 the deceased sold his dairy herd to Mr and Mrs Dalitz. Over time, Mr Dalitz brought his dairy herd to Hope Farm along with various pieces of farming equipment.
On 12 or 17 October 2015[23] the deceased executed a lease in favour of Mr Dalitz, over two of the farming properties, namely, Outback, Hope Farm and Laws for five years with a right of renewal for a further five years. Mr Dalitz has continued to farm those properties since the deceased’s death in accordance with the lease, having exercised his right of renewal.
[23] It is unclear from the handwriting on the lease whether it was executed on 12 or 17 October 2015.
I find that by his will, the deceased bequeathed Hope Farm to Mr Dalitz. At the time he made his will the deceased knew that Hope Farm was being operated as a dairy farm and he expected it would continue as such under the lease.
The requirement for ready access to a large quantity of water is vital to the conduct of a dairy farm. At Hope Farm Mr Dalitz uses about 5,000 litres per day in the course of the milking operation. The water is obtained from a bore which is sunk some 300 metres from the dairy. It is equipped with a generator and electric pumps. Water from the same bore is also used for the provision of stock water. Water is pumped to a tank and gravity-fed to a series of about eight different watering points constituted by cement troughs. It is required twice daily for milking. The main bore is metered. The last annual usage from that bore was about 11,500 kilolitres. Mains water is not available. Water from the bore can also be used to irrigate pasture. The water licence held by the deceased was only used in relation to the dairying operations on Hope Farm. The water licence was not used in relation to any of the other farms owned by the deceased at his death. As I have said, it was a condition of the water allocation given under the water licence that the water was only to be used on the land which was gifted to Mr Dalitz pursuant to clause 3.5. The water licence was predominantly used for the taking of underground water.
Is the water licence an accessory which follows the principal gift under clause 3.5 of the will?
By clause 3.5 of the will the deceased not only bequeaths specific land to Mr Dalitz, but in addition all the dairy farming plant and equipment owned by him at his death. Doing so, in conjunction with the devise of Hope Farm, strongly suggests an intention that he wanted to afford Mr Dalitz the opportunity, and to that end, the capacity, to permit him to continue to operate Hope Farm as a dairy farm, in the manner it had historically operated.
The deceased obviously enjoyed a close relationship with Mr Dalitz as is evidenced by his gift of Hope Farm and Laws to him. The evidence establishes that Hope Farm was valued at $1,775,000 and Laws was valued at $350,000. In those circumstances there is nothing unusual or unlikely about the deceased intending that the water licence should run with Hope Farm. I do not accept the submission of Mr Hanak that the terms of clause 3.5, which bequest the dairy farming plant and equipment, evidenced an understanding that personal property did not pass with the land. Further, I reject the submission that the language of clauses 3.4 and 3.5, dealing with the disposition of land, evidences an appreciation on the part of the deceased that he was not disposing of the water licence. That is a distinction a lawyer might make but I do not accept that it is one a farmer would make. There is no evidence that would satisfy me that in making his will the deceased appreciated that it was necessary to make a specific bequest of the water licence to ensure that the gift of Hope Farm would continue to operate as it had been prior to the deceased making his will.
I am satisfied on the evidence that the use of the underground water extracted from the bore located on Hope Farm under the water licence is integral and essential to the operation of that dairy farm. While there is evidence that it might be possible for Mr Dalitz to purchase water or attempt to obtain another water licence, I am unable to find that this would be financially viable or, more importantly, that that accurately reflected the deceased’s testamentary intention. Rather, I consider that it is more likely he intended by the testamentary gift made in clause 3.5 that Mr Dalitz would be able to continue to operate Hope Farm as it had been operated in the past including by having recourse to the allocation available under the water licence. I am satisfied that the evidence establishes the use of the underground water extracted from the bore is integral to the operation of Hope Farm as a dairy farm. The evidence is that the operation of the Hope Farm dairy consumed a very specific quantity of water that is obtained in accordance with the terms of the licence that was held by the deceased. The operation of the dairy depends upon it. The surrounding circumstances in this matter imply that the gift of the water licence was necessary to the reasonable enjoyment of the gift of the land to permit Mr Dalitz to continue to operate it as a dairy farm. The facts of the case establish the circumstance of necessary dependence, which is the foundational principle of the rule that accessories follow the principal gift. There is no basis to apply the qualification to that principle so as not to draw the implication that the deceased intended the water licence to go with the gift of the land and dairy farming plant and equipment. I accept Mr Dalitz’s submission that it is a reasonable inference from the terms of clause 3.5 that the deceased intended to leave to him “all that was appurtenant to the operation of the property as a farm”.[24]
[24] Martin v Martin [2010] NSWSC 700 at [42].
The water licence is a species of property which is appurtenant to the necessary operation of Hope Farm as a dairy farm.
In my view the above analysis is consistent with the old authorities in this area.[25]
[25] Pearson v Spencer (1863) 3 B&S 761; Wood v Gaynon (1761) Amb 395; and Phillips v Low [1892] 1 Ch 47 at 51-52.
In Phillips v Low[26] it was held that an implied gift of a right of light applied to devises of land by will where there was a necessary dependence on the adjoining land in order to enjoy the land in the state it was when devised. Chitty J said:[27]
If the owner of the house and field by deed for value grants the house but retains the field, it is settled law that a right to the light required for the enjoyment of the house passes to the grantee. ... what is conveyed is not a mere brick or stone building with apertures called windows, but a house with windows enjoying light. This is the broad, substantial reason which commends itself at once to the common sense of mankind. Worked out somewhat more technically, the conveyance operates as an implied grant of the light. … The implication does not necessarily arise upon a mere perusal of the deed itself: generally the situation and ownership of the adjoining field is not disclosed; but the implication of grant arises primâ facie so soon as the facts are ascertained that the light required for the windows passed over the field, and that the grantor was owner of the field at the time of the grant. On these facts being known, and in the absence of any other special circumstances, the law imputes to the parties an intention that the easement of light should pass with the house by virtue of the grant.
[26] Philips v Low [1892] 1 Ch 47.
[27] Ibid at 50-51.
I find the water licence was necessarily impliedly given by the deceased to Mr Dalitz under clause 3.5 of the will.
While I accept the submission of Mr White for Mr Hanak that the rule relating to accessories following the principal gift as stated in Williams[28] does not expressly extend to a separate statutory entitlement to draw water which is personal and tradeable property, I do not consider that defeats Mr Dalitz’s argument. There is nothing special about the fact that the water licence is a statutory entitlement which is personal to the licence holder, in this case the deceased, and is tradeable. Those factors do not gainsay the proposition that having regard to all the facts and circumstances surrounding the making of the deceased’s last will, there is an evident testamentary intention that the deceased intended to gift Mr Dalitz the working dairy farm that was Hope Farm as it operated at the time he made his will.
[28] W J Williams, Williams on Wills (Butterworths, 7th ed, 1995) 601.
Accordingly I find that the water licence does not fall into the residue but passes to Mr Dalitz as part of the specific bequest of the land in clause 3.5.
Is the water licence dairy farming plant and equipment?
This renders it unnecessary to consider whether the water licence is dairy farming plant and equipment within the meaning of clause 3.5. I should add, however, that I do not accept that the licence is to be considered part of the dairy farming plant and equipment within clause 3.5. Even allowing for a broad construction of the phrase, I do not consider it can extend so far as to include something as intangible as a statutory licence. That conclusion is neither inconsistent with the approach that led to the conclusion that the licence is an accessory that follows the principal gift of the land as a dairy farm, nor undermines that conclusion. That conclusion is supported by the inclusion in clause 3.5 of all the dairy farming plant and equipment to Mr Dalitz as indicating an intention that he should be able to continue dairy farming on Hope Farm in the manner in which it had been undertaken since 2004 when the NRMA created the statutory licence pursuant to which the farm was conducted.
Conclusion
I would advise and direct the applicant that he should get in the water licence 118583-0 and distribute it to Mr Dalitz in accordance with the gift in clause 3.5 of the will. I make a binding determination in relation to this matter pursuant to s 69(4) and (6) of the Act.
I will hear the parties further in relation to any other advice or direction they seek and the question of costs.
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