O'Loughlin v Mount & Mount No. Scgrg-96-2417 Judgment No. S6672

O’LOUGHLIN, FULLER & ORS V MOUNT & MOUNT

Full Court
Coram: Cox, Lander & Bleby JJ

LANDER J

The appellants appeal from a decision of a Judge of the District Court in which the learned Trial Judge found that the appellants took a transfer of land from the respondents in circumstances where it was held “merely by way of security for costs and that although the legal transfer was to the defendants the beneficial interest was retained by the plaintiff (respondents) and the defendant (sic) must account to the plaintiff (sic) for the difference between the $76,000 and the $10,000 costs and the costs associated with holding and selling the land.” Judgment was entered for the respondents against the appellants in the sum of $58,420.90 together with interest in the sum of $65,000.

The respondents have cross appealed in relation to the dismissal of a further claim by the respondents against the appellants for damages for professional negligence.

Overview

The defendants were at all material times a firm of solicitors carrying on a business under the style or firm name of O’Loughlin, Robertson & Co. Specifically Mr Tony Fuller, who was admitted as a practitioner of this Court in 1967 and, who has since then practised principally in commercial matters, property and insolvency, was a partner of that firm.

The respondents first retained the appellants in 1977 and thereafter retained them from time to time in connection with a number of matters. The male respondent, who was at the time of trial seventy-two years of age, first consulted Mr Fuller in relation to minor matters. In due course he was obliged to retain him in relation to a property development, Mount Acres, which he promoted. During the promotion of that property development he became financially embarrassed and was obliged to introduce a partner into the development. In due course Mr Mount and the partner became involved in a dispute and Mr Mount retained Mr Fuller to act on his behalf.

During the continuance of that dispute, Mr Mount was unable to meet his legal costs and he came to an arrangement with Mr Fuller whereby he transferred a block of land to Mr Fuller in satisfaction of the amount owing for legal fees. This occurred in about 1982.

A trust account statement was tendered (exhibit P2) showing a debit for costs to O’Loughlin Robertson & Co of $12,679.56 and a credit given by Mr Mount. The date of that trust account statement is 6 July 1982 but Mr Mount’s evidence was that he had never received the account for the amount of work done nor did he ever receive the trust account statement.

Between July 1982 and July 1983 no accounts were rendered for work done and Mr Mount’s evidence was that he did not know whether he owed any money to Mr Fuller or the firm to that point of time.

In July 1983 there was a discussion between Mr Fuller and Mr Mount in relation to Mr Mount’s then financial position and his liability to Mr Fuller’s firm for fees. During that attendance Mr Fuller told Mr Mount that he and his wife were at risk of bankruptcy.

Following that discussion on 20 July 1983 the respondents transferred to the appellants two leases numbered 2781292 and 2781293 in respect of allotments numbered 60 and 61 in a plan deposited in the General Registry Office at Adelaide and numbered 1168 of 1965.

In October 1983 the leases were conveyed to the members of the firm.

At the same time as the leases were transferred to the appellants the respondents transferred two leases to their accountants. The relationship with their accountants was similar to their relationship with their solicitors in the respect that they were not able to meet their accountants fees from time to time.

The leases registered in the names of the appellants were subsequently sold in October 1986 and Mr Mount first became aware of the sale when he saw other persons on the leases.

It was in respect of those leases that the learned Trial Judge found the appellants held merely by way of security for costs and for which judgment was entered for the respondents. That is the subject matter of the appeal.

The respondents owned property adjacent to the Murray River near Murray Bridge in the crest of Reedy River. They first acquired part of the property when they bought a small property as a holiday house. They increased the size of the property until it was about 400 acres in total. Part of the land was irrigated. When the Water Resources Act 1976 came into operation the respondents obtained a water licence to irrigate 130 acres, planted to lucerne. The water licence gave them an entitlement of 493,316 kilolitres of water annually.

On 30 April 1981, the respondents sold the land to Graham Kennett Bishop, Marilyn K Bishop and Godfrey Arnold Bishop. The sale included the transfer of the entitlement to the water licence. The respondents took a third mortgage over the property. The mortgage was in the sum of $40,000 and carried interest at the rate of 15 per cent repayable by equal and successive quarterly instalments.

The Bishops defaulted in respect of all three mortgages and steps were taken by the first and second mortgagees to sell the property by public auction.

In the month of April 1983 the respondents retained the appellants to draft a written agreement between the respondents and the Bishops to effect a transfer from the Bishops to the respondents of one half of the entitlement under the water licence, subject to approval by the Minister of Water Resources.

The appellants drafted the written agreement which was executed by the parties.

On 26 April 1983 the appellants lodged the transfer of the water licence together with the prescribed fee with the E & WS Department for the approval of the Minister for Water Resources.

No approval was forthcoming before 30 June 1983 and on that day at an auction held by the first and second mortgagees the land was sold to Mr Graziano. Under the terms of the auction, settlement was to occur on 30 August 1983.

At no time prior to settlement of the property did the Minister of Water Resources give approval for the transfer by the Bishops to the respondents of any part of the entitlement formerly owned by the respondents.

On 28 September 1983, the Minister of Water Resources issued a water licence in the name of Mr Graziano.

The respondents claimed, in their proceedings against the appellants, that the appellants were in breach of their duty to the respondents in failing to effect a transfer of any part of the entitlement under the water licence to the respondents either before or after 30 August 1983. It was claimed that that failure caused the respondents’ damage.

The learned Trial Judge dismissed that aspect of the respondents’ claim and the respondents now cross appeal in relation to that dismissal.

The appellants continued to act for the respondents up until early 1987 when the relationship ceased after the exchange of acrimonious correspondence relating to both of these matters.

They are the facts briefly to show the general relationship between the appellants and the respondents and to set the broad scene for the examination of the appeal and the cross appeal.

The Learned Trial Judge’s Findings On The Credibility Of Witnesses

There was, not surprisingly, so long after the events a number of factual disputes which needed to be resolved by the learned Trial Judge. Those factual disputes required the learned Trial Judge to make findings as to which witnesses he preferred.

In relation to a number of important conversations he was obliged to determine whether he preferred the evidence of Mr Fuller or Mr Mount.

His Honour unequivocally preferred the evidence of Mr Fuller to that of Mr Mount. He described Mr Fuller as a candid witness who relied upon his memory rather than reconstructing events. On the other hand he described Mr Mount as having a considerable lapse of memory on a number of issues.

In the determination of both the appeal and cross appeal this Court must have regard to and respect the advantage that the learned Trial Judge had in hearing the evidence and in assessing the credibility of those giving the evidence. It cannot be doubted that the learned Trial Judge depended upon the credibility of the competing witnesses to a substantial degree in making a number of the findings which he did.

In those circumstances this Court must respect and have regard to those findings and not interfere with them because it cannot be said in this case that the learned Trial Judge has in any way failed to use or palpably misused advantage which he had. Nor can it be said that he has acted on evidence which was glaringly improbable: Devries v Australian National Railways Commission (1993) 177 CLR 472.

The Appeal

As I have already mentioned the respondents were in dire financial circumstances prior to July 1983. On 3 May 1982, Dajamo Pty Ltd was incorporated with the respondents as directors and Mr Fuller and Ms Mount as shareholders. Mr Fuller held six of the seven shares issued. On the same day he executed a declaration of trust acknowledging that he held one of those shares on trust for Christopher Mark Jaunay Mount. The evidence indicates that at least up until November 1986 Mr Fuller still held those shares.

On 4 May 1982, Graham Jaunay Mount, as settlor settled the sum of $20 for the creation of the David Mount Family Trust. The trustee was Dajamo Pty Ltd. The beneficiary of the trust was David Jaunay Mount and specified beneficiaries including his spouse and his children and remoter issue.

The purpose of the creation of the trustee and the settlement of the trust was to avoid the consequences of bankruptcy in the event that that was the end result of his dispute with his partner in relation to the Mountacres promotion.

The respondents’ son Trevor and his wife held an estate as lessees in a memorandum of lease number 2807162 and 2807163 being portion of the land comprised in Certificate of Title Registerer Book Volume 3520 folio 111 (Trevor’s block). They sold their estate and interest in those leases to the respondents for $26,500 as evidenced by a transfer dated 19 January 1981.

Shortly after the settlement of the David Mount Family Trust the respondents transferred to the appellants the land previously owned by their son and daughter in law for a consideration expressed in the transfer of $15,000.

It was not disputed by the respondents that that land was transferred to the appellants in satisfaction of the amount then owing by the respondents to the appellants for legal fees.

There is no doubt that at the time of that transfer and, of course, at all times thereafter there was a fiduciary relationship existing between the appellants and the respondents. The appellants’ had continuing fiduciary obligations to the respondents and in particular to ensure that they always acted in the best interests of the respondents.

At the time that Trevor’s block was transferred to the appellant, Mr Mount was advised that he ought to get independent legal advice. He declined and told Mr Fuller that as he could not afford the fees owing to Mr Fuller he was not going to expend further fees on obtaining independent advice.

As I have said, Mr and Mrs Mount concede that the transfer of that property was for the purpose of paying the appellants’ fees. It was not contended that it was anything but an absolute conveyance.

Between that time and 20 July 1983, Mr Mount’s financial position worsened but at the same time he continued to need the assistance of the appellants. They continued to act for him during the whole of that period in relation to the Mountacres dispute and as I have already mentioned took instructions from him in relation to the recovery of the water entitlement from the Bishops. There was no doubt that Mr Mount was seeing Mr Fuller frequently during this time. He said the situation was one where he was seeing Mr Fuller very often.

About two weeks before 20 July 1983, Mr Fuller raised with Mr Mount the matter of his fees. He told Mr Mount that at that time they were handling a number of issues for him and there was going to be a significant amount of cost involved. There were two discussions, both in Mr Fuller’s office, during which Mr Fuller raised with Mr Mount how it was that he was going to pay the appellants. During those discussions Mr Mount told him that all he had was land and that he would have to pay by way of land.

Mr Fuller’s evidence was that in the second discussion the subject of the quantum of the fees in the foreseeable future was raised. He said he told Mr Mount that having regard to the matters in which they were then retained the respondents were going to incur at least, and probably a lot more than, $10,000 in the immediately foreseeable future.

On that second occasion the parties had a copy of the title search or a plan before them which showed the blocks owned by Mr Mount. The parties considered the plan of the allotments. Mr Fuller said that he suggested to Mr Mount that they would need to take three of the blocks. He said that Mr Mount told him during that discussion that there was a valuation of the blocks at $3,000 each but he said that since the valuation had been obtained some earthworks had been done on the property as a result of which the blocks had increased in value to about $5,000 and the two blocks would be adequate to meet projected fees of $10,000. Mr Fuller’s evidence was that he accepted that. He said that he told Mr Mount on that second occasion that they were taking the two blocks for $10,000 worth of fees but that if any more than $10,000 was incurred then he would have to pay the further fees.

Mr Fuller said that thereafter he drew up an agreement, which was executed on 20 July 1983 at the respondent’s property.

However, subsequent to that second discussion and before execution of the agreement on 20 July 1983 there was a further discussion between Mr Fuller and Mr Mount but this time relating to the fees of Messrs Genders and Wishart, the respondents’ accountants.

That discussion arose because Mr Fuller had explained to Mr Genders about the arrangement which he had made with Mr Mount about his fees. Mr Genders indicated to Mr Fuller that he also believed that he was exposed in relation to his future fees. He considered that his future fees could amount to $15,000. As a result of that discussion Mr Fuller had a further discussion with Mr Mount. Mr Fuller said it was agreed that Mr Mount would convey three blocks to Messrs Genders Wishart in respect of their fees. An agreement was prepared in relation to that transaction between Mr Mount on the one hand and Mr Genders and Mr Wishart on the other. That agreement with a number of alterations was also executed on 20 July 1983.

Mr Fuller was asked in his evidence in chief whether there was any discussion between himself and Mr Mount about the transaction simply being a security or some sort of mortgage. Mr Fuller said that if he had intended to simply take a security over the blocks he would have drafted a mortgage over the properties for a running account for an unlimited amount and stamped it according to whatever was owing. He said the only conversation in relation to this matter was upon the basis that there be a transfer of the blocks absolutely.

He said, accompanied by a solicitor Mr Cummings, he took the documents to the respondents’ property at Murray Bridge. They sat around a table and Mr Mount read the documents. Mrs Mount was present. It was a nice sunny day and Mr Fuller was in no hurry to leave. He believes he was there for at least an hour. There was no discussion about stamp duties.

On the topic of the conversations leading up to the execution of both agreements there was substantial disagreement between Mr Fuller’s evidence and that of Mr Mount. The learned Trial Judge preferred the evidence of Mr Fuller. In particular His Honour found:

“I accept the evidence of Fuller as to his attendance at the river front and the discussions he had with Mount.”
That finding is important because Mr Mount said that there were no discussions in relation to this topic at all before 20 July 1983 the date the document was signed. He said there was a discussion at his property, Sunnyside. His evidence of that discussion was as follows:

“Q.Can you tell the court what was said between you and Mr Fuller when he came to Sunnyside Estate to see you. I don’t mean word for word, but the effect of what was discussed between you.

A.Well, he was suggesting that he would be in a difficult position as far as finance is concerned to carry on in the future for all that might happen and that he would be left out in a limb without any capacity to get paid, and suggested that there should be a transfer of some blocks to him to cover an estimated sum of, say, $10,000 which would secure his position and he wanted to - well, the details of that perhaps you want to know later, but that was the bones of the arrangement at that moment in time to achieve that objective.

Q.When he came to see you in July ’83, did he mention anything about monies that you owed him for work that he had done in the past.

A.No.

Q.As far as you were concerned, did you owe him any money for work he had done in the past at that point in time as at July ’83.

A.I have no idea.

Q.Had he ever asked you for the payment of fees for work he’d done up to July ’83 apart from the transfer of the first block that you’ve already referred to.

A.No.

Q.How did you know that Ferry had made a demand on you. How did you know that.

A.Mr Fuller told me.

Q.And when did he tell you that.

A.On that same day.

Q.When he came to see you.

A.Yes.

Q.What arrangement did he suggest be entered into.

OBJECTION Mr Beazley objects on the ground Mr Sallis should not be leading.

Q.Do you recall how long Mr Fuller was at your residence on that day.

A.Two or three hours, I guess.

Q.And can I ask you to think carefully as to whether anything else was discussed between you.

A.Only that - he arrived, so we went down to the blocks of land called Fillamex and Mr Fuller was - we found out or he told us that he was going to get a couple of - well, attend to Mr Genders’ needs as well as his and he had spoken to Mr Genders and was acting to cover Mr Genders as well, so we walked down to the blocks and he chose - he suggested three blocks for each party and I suggested one.

Q.When you say ‘each party’, what do you mean by that.

A.Well, for Mr Genders and for himself.

Q.These three blocks.

A.That’s right, but I objected. I suggested that one was sufficient. Eventually it was set for two and each party.

Q.And what else was discussed.

A.Mr Fuller said that he would make out an agreement and he’d get the block transferred over to all parties concerned, make out an agreement and that would be security for the payments that were to be coming in the future.

Q.And was else was said.

A.I can’t think of anything relevant at the moment, but it might come back as time goes on.”

He said there was some discussion about the value of the property and in particular that he told Mr Fuller that he had sold one block for $20,000 and therefore Mr Fuller needed only one block. He said eventually they settled on two because the value of the blocks was academic because it was only a question of security.

He was then asked this:

“Q.Did you and Mr Fuller discuss on that occasion what would happen to the proceeds of the block, the two blocks, when they were sold.

A.Yes.

Q.What was the effect of what was said.

A.He would get paid his bill and I would get the change.

Q.When you say ‘He would get paid his bill’.

A.Whatever that was.

Q.Was any amount of money mentioned.

A.No, except for the $10,000 you’re talking about, is that the question you’re asking me?

Q.I’m just asking you if any amount of money was mentioned in that, when Mr Fuller spoke about the value of the work that he would do.

A.He anticipated that the trouble with Mr Ferry could cost up to $10,000, so that was the basis of the value, if you like, but there wasn’t any discussion about what would happen if it was more than that value, except that in my mind, I certainly would have felt that anything above that I would have to pay, would come out the proceeds of the sale.

HIS HONOUR

Q.By using the word ‘change’, you mean you get the difference between the bill and sale price of the blocks.

A.Yes, net, of course.”

The learned Trial Judge preferred the evidence of Mr Fuller so it must follow that he accepted Mr Fuller’s evidence that the conversation proceeded as I have previously recounted it and in the circumstances in which I have set it.

That being so it must be assumed that His Honour found that Mr Fuller did not ever say to Mr Mount that if the properties were sold the firm would take $10,000 and the change would be given to Mr Mount. It also follows that the conversation in relation to the conveyance must be understood as relating only to an absolute conveyance of property.

There is evidence to support the suggestion that the value of the properties at the time was in the order of $5,000. There was a valuation of the property including the two blocks in question at $3,000 per block but the date of the valuation is not clear. There is evidence that there were some works done to the property after that time which may well have increased the value of the properties but not significantly. There was also evidence that Mr Mount conveyed the eight remaining blocks to his trustee companies Dajamo Pty Ltd in late 1983 for about $4,500 per block.

Mr Fuller did not advise Mr Mount that he should obtain independent legal advice with respect to this transaction and the document was executed in the circumstances which I have outlined and the transfer of the leases was registered on 19 October 1983.

An agreement in similar form in which Mr Mount transferred three blocks to Robin Bentley Genders and Richard James Wishart was also executed on 20 July 1983. It was subsequently amended by agreement to delete one of the leases and to make consequential amendments which I shall mention later.

Otherwise it was in the same form as the agreement between the appellants and respondents executed on 20 July 1983.

I set out the agreement with the appellants:

“MEMORANDUM OF AGREEMENT made this 20th day of July 1983 BETWEEN : DAVID JAUNAY MOUNT of Sunnyside Farm, Murray Bridge 5253 in the State of South Australia, Company Director (hereinafter together with his executors administrators and assigns called “Mr Mount”) of the one part and MAURICE FRANCIS O’LOUGHLIN, ANTHONY BERNARD FULLER, LARRY JOHN OPIE, ROBERT LEWIS RICHARDS and GREGORY TRAVERS BROWN all of 70 Pirie Street, Adelaide 5000 in the said State, Barristers and Solicitors (carrying on business under the name of, and hereinafter together with their executors administrators and assigns collectively referred to as, “O’Loughlin, Roberts & Co.”) of the other part
WHEREAS :-
A...... Mr. Mount has heretofore engaged O’Loughlin, Robertson & Co. as his solicitors in connection with various matters on which Mr. Mount has sought advice and counsel;
B.Mr. Mount is desirous of continuing to engage O’Loughlin, Robertson & Co. to act as his solicitors in connection with various matters;
C...... In consequence of such engagement Mr. Mount will in due course become indebted to O’Loughlin, Robertson & Co. for professional fees as and when accounts for the same are raised and issued by O’Loughlin, Robertson & Co.;
D.Mr. Mount is the lessee named in Memoranda of Lease No’d. 2781292 and 2781293 in respect of the allotments numbered 60 and 61 in the plan deposited in the General Registry Office at Adelaide and numbered 1168 of 1965 (which said leases are hereinafter referred to as “the leases”);
E...... Mr. Mount warrants to O’Loughlin, Robertson & Co. that the total market value of the leases as at the date hereof is $10,000.00;
F.O’Loughlin, Robertson & Co. have requested Mr. Mount to convey and Mr. Mount has agreed to convey to O’Loughlin, Robertson & Co. all of Mr Mount’s estate and interest in the leases on account of and as and by way of security for such professional fees costs and expenses as may from time to time become payable by Mr. Mount to O’Loughlin, Robertson & Co. up to a limit of $10,000.00;
NOW THIS AGREEMENT WITNESSETH as follows :-
1.In consideration of these presents and in further consideration of O’Loughlin, Robertson & Co. agreeing to carry out and perform additional professional services for Mr Mount from time to time Mr Mount hereby agrees to transfer and assign to O’Loughlin, Robertson & Co. the whole of his estate and interest in the leases free of all encumbrances.
2...... O’Loughlin, Robertson & Co. agree to accept such conveyance and assignment on account of and in satisfaction of such costs and expenses as shall hereinafter become due and payable by Mr. Mount to O’Loughlin, Robertson & Co. up to the aforesaid limit of $10,000.00 to the intent and with the effect that such costs and expenses as shall become due and payable over and above the said limit of $10,000.00 shall be and remain debts due and payable by Mr. Mount as and when the same accrue.”

......... Paragraphs A, B and D of the recitals are not controversial. Paragraph C confirms that there was not then owing to the appellants the sum of $10,000 for professional fees but it was expected such a sum would become owing. Paragraph E is a warranty by Mr Mount to the appellants that the total market value of the leases as at the date of execution was $10,000. That warranty tends to confirm Mr Fuller’s evidence that a fair valuation of the blocks at this time was $5,000. If the blocks were then worth in the order of $20,000 each there would seem to have been no need for a warranty of the kind in the recital.

Paragraph F gives rise to some difficulties. It states in clear enough language that the conveyance to the appellants is on account of and as and by way of security for professional fees, costs and expenses up to a limit of $10,000. The recital does not speak of a transfer absolutely.

On the other hand the operative parts of the agreement are unambiguous. Clause 1 provides for the transfer of the whole of Mr Mount’s estate and interest in the leases to the appellants in consideration of the appellants agreeing to carry out and perform “additional professional services” for Mr Mount from time to time.

Clause 2 also contemplates, in my opinion, a transfer absolutely in that the appellants agree to accept the transfer “in satisfaction of such costs and expenses as shall hereinafter become due and payable by Mr Mount to O’Loughlin, Robertson & Co. up to the aforesaid limit of $10,000.00.” Those words clearly contemplate that the transfer will be absolute. The clause, however, goes on further reserving to the appellants an entitlement to costs and expenses over and above the limit of $10,000 which “shall be and remain debts due and payable by Mr Mount as and when the same accrue”. If the transfer was only by way of security those words would not be included. Those words contemplate that transfer of these leases is in satisfaction only of $10,000 worth of professional fees. Thereafter Mr Mount had an obligation to pay for any fees over and above that amount.

The appellants raised internally an account dated 5 October 1983 in the following form:

“
PINK SLIP BILL
ABF:RLD:24562  5th October, 1983.
D.J. & N.P. Mount,
Sunnyside Farm,
MURRAY BRIDGE. S.A. 5253
RE: COSTS   DISB.      CHARGES
TO OUR CHARGES in connection
with various matters upon which
you have instructed us and in
respect of which we have rendered
you professional services
OUR INTERIM CHARGES :-  10,000.00
LESS consideration given by
transfer of Leases No’d.
2781292 and 2781293 as per
agreement dated 20th July 1983  10,000.00
  ________
BALANCE OUTSTANDING -  NIL
  ________
With compliments:
O’LOUGHLIN, ROBERTSON & CO.
Per: A. B. FULLER”
On the same day the appellants issued a receipt in the following form:

“No. 7051  5-10-83
RECEIVED from D J & N P Mount the sum of ten thousand dollars by way of transfer of Leases Nos. 2781292 and 2781293
By  A/c            D J & N P Mount
Re  Costs

O’Loughlin, Robertson & Co.

$10,000.00”
The transfer of the leases was registered on 19 October 1983.

It may be inferred from the timing of those matters that the appellant did not feel entitled to register the transfer until such time as $10,000 worth of work had been done. However Mr Fuller was not able to say that $10,000 worth of work had been done by 5 October 1983 but he presumed it had.

The agreement between Mr Mount and Messrs Genders and Wishart is in the same form. As I have already mentioned in its original form it provided for the transfer of three leases and for a warranty in paragraph E that the total market value of the leases was $15,000. Paragraph F provided for fees up to $15,000. The document was amended so as to reduce the figure to $10,000 and the number of blocks to two so that thereafter it was in the same form as the agreement with the appellants.

There is the same inconsistency in the recital and the operative part of the agreement.

In both agreements the operative clauses are clear and unambiguous. They provide for a transfer absolutely. The difficulty arises because recital F is inconsistent with a transfer absolutely and contemplates a conveyance by way of security for professional fees up to a limit of $10,000.

The appellants contend that in circumstances where the operative parts of the agreement are clear and unambiguous they are not to be read down or read contrary to the express terms of the operative clauses even if they are inconsistent with a recital. I think that argument is right.

In Halsbury’s Laws of England Fourth Edition Vol. 12 p1509 it is said:

“In the construction of an instrument the recitals are subordinate to the operative part, and consequently, where the operative part is clear, it is treated as expressing the intention of the parties, and prevails over any suggestion of a contrary intention afforded by the recitals.”
A number of authorities are cited supporting that proposition. In Bailey v Lloyd (1829) 5 Russ 330 Leach M R said at 344:

“If the operative part of a deed be doubtfully expressed, there the recital may safely be referred to as a key to the intention of the parties; but where the operative part of the deed uses language which admits of no doubt, it cannot be controlled by the recital.”
(See also Patteson J in Walsh v Trevanion (1850) 15 QB 733 at 751).

In Holliday v Overton (1852) 14 Beau 467, Romilly M R, relying on inter alia Bailey v Lloyd (supra), stated the rule at 470:

“It is impossible by a recital to cut down the plain effect of the operative part of a deed.”

In Orr v Mitchell [1893] AC 238 a decision of the House of Lords, Lord Macnaghton expressed a similar view at 254:

“When the words in the dispositive or operative part of a deed of conveyance are clear and unambiguous they cannot be corrected by reference to other parts of the instrument.”
Brett L J in Leggott v Barrett (1880) 15 Ch D 306 said at 311:

“If there is any doubt about the construction of the governing words of that document, the recital may be looked at in order to determine what is the true construction; but if there is no doubt about the construction, the rights of the parties are governed entirely by the operative part of the writing or the deed.”
In Dawes v Tredwell (1881) 18 Ch D 354 at 358 Jessel M R referred to the rules of construction with respect to recitals as follows:

“The rule is, that a recital does not control the operative part of a deed where the operative part is clear.
There is another rule that the recital of an agreement does not create a covenant where there is an express covenant to be found in the witnessing part relating to the same subject-matter. If, therefore, the covenant is clear, it cannot be controlled or affected by the recital.”
In Ex parte Dawes (1886) 17 QBD 275 at 286 speaking of the construction of a deed of assignment Lord Esher MR said:

“Now there are three rules applicable to the construction of such an instrument. If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.”
In The Commissioner of Inland Revenue v Raphael [1935] AC 96, a decision of the House of Lords, Lord Warrington said:

“The principle of law in this respect is perfectly settled and it may be thought unnecessary to restate it or to refer to authority on such a point. But in deference to the arguments addressed to the House I will cite the opinions of certain noble and learned Lords, expressed in the case of Mackenzie v Duke of Devonshire [1896] AC 400. In that case an attempt was made, similar to that made by the appellants, to modify as a matter of construction clear and unambiguous words in the operative part by reference to the intention of the settlor as expressed in the narrative part of the deed. Lord Halsbury said [405]:
‘If the trust purposes are set forth in the paragraph of the deed which is appropriate to such purposes, it seems to me to be absolutely unarguable that the true meaning of those words, and the purposes of the trust so set forth, can be in any way controlled, qualified, or modified by the initial statement of what the motive of the author of the deed was. It would to my mind be disastrous to introduce such a system of construing a deed. One has known the language of a will somewhat perverted to perform the function which it was assumed the testator intended to be performed, but I never in my life heard of the language of a deed which contained a perfectly unambiguous provision being twisted from the natural ordinary meaning of the words by a preliminary statement of what the maker of the deed intended should be the effect and purpose of the whole deed when made.’

Lord Watson in the same case said [407]:
‘The narrative words come to no more than this; ‘My intention is to do’ so and so, and you may add this, ‘and I have accomplished that purpose by the provisions which follow.’ In such a case the safer and only legitimate course is to look to the provisions which follow, and to read them according to their natural and just construction.’

Lord Davey said [408]:
‘I take it to be a settled principle of law that the operative words of a deed which are expressed in clear and unambiguous language are not to be controlled, cut down, or qualified by a recital or narrative of intention.’ ”

Lord Wright in his speech said that he had found no case contrary to the principles laid down in Mackenzie v Duke of Devonshire (supra). He also cited with approval the statement of Lord Esher in Ex Parte Dawes (supra) to which I have referred.

In Halsbury’s Laws of Australia First Ed. Vol. 10, the learned author states the three rules of construction in the same terms as Lord Esher. Counsel have not been able to direct the Court to any Australian authority precisely on point. Reference was made to Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (1977) 139 CLR 54 and in particular the judgment of Mason J at 72/73 but the dictum referred to is not precisely on this point.

The English cases are perfectly clear and of long standing. It would be appropriate, in the absence of Australian authority, that this Court regard the decisions of the House of Lords, which certainly support the propositions relied upon by the Australian author of Halsbury’s Laws of Australia, as highly persuasive: Viro v The Queen (1978) 141 CLR 88, Bassell v McGuiness (1982) 29 SASR 508, Cook v Cook (1986) 162 CLR 376.

In those circumstances it would be appropriate to disregard the recital for the purpose of construing the agreement and uphold the construction contended for by the appellants.

The learned Trial Judge thought otherwise. He said after referring to the agreement:

“I find that the significant clause in the agreement to determine this matter is clause F and the words as agreed “to convey … as and by way of security for such professional fees cost …”
I have no doubt and I find that on the face of the agreement the land was conveyed to the defendants as security only and that the beneficial interest in the land remained with the plaintiff.”
In my respectful opinion the learned Trial Judge erred in his approach to construction. Applying the rules of construction to which I have referred it would have been appropriate to determine first whether the operative clauses of the agreement were unambiguous and if they were, in my opinion, then to disregard the inconsistent words in recital F. It follows that in my opinion His Honour erred in the construction at which he arrived.

Having regard to the findings by the learned Trial Judge in preferring the evidence of Mr Fuller to that of Mr Mount then the construction at which I have arrived is consistent with Mr Fuller’s evidence and in particular that it was the intention of the parties that there be an absolute transfer and that Mr Mount remained liable for any costs in excess of the sum of $10,000.

The respondents argued that if this Court determined that the agreement operated as an absolute transfer the Court should exercise its discretion to “set aside” the agreement, “by virtue of its inherent powers, its powers under District Court r01.08(2), its powers under s2(7) of the District Court Act ... or by virtue of any other enabling power”. It was submitted that the Court can rescind or vary a solicitor/client agreement, which it was said this agreement is, if the Court considers any term is not fair and reasonable. Reliance was placed upon District Court r01.08(2) and s42(7) of the Legal Practitioners Act.

The difficulty in this submission it was never part of the respondents’ case on the pleadings or at trial that this agreement should be “set aside” or “rescinded or varied” for any of the reasons mentioned. That was not the respondents’ case and the parties did not address those matters. It would not be appropriate to allow the respondents to attempt to make that case for the first time on appeal.

The respondents’ principal case was that the agreement, on its true construction, provided that the leases would be transferred to the appellants by way of security for such professional fees, costs and expenses to the value of $10,000, as should become payable by the male respondent to the appellants.

It was put in the alternative that it was an implied term of the written agreement that within a reasonable time of the costs payable by the first respondent to the appellants amounting to the sum of $10,000 the appellants would sell the said leases and from the proceeds retain so much thereof as was sufficient to pay their costs and account to the first respondent for the net proceeds after payment of the costs of sale. It was said that that term was to be implied from a number of circumstances to which I have already referred.

Having regard to my finding that the agreement provides for a transfer absolutely of the leases to the appellants, of course, no such term can be implied. Such an implied term would be contrary to the express terms of the agreement; B P Refinery (Westernport) Pty Ltd v Shire Of Hastings (1977) 16 ALR 363. In that case Lord Simon of Glaisdale delivering the majority opinion of the Board of Privy Counsel said at 376:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied; (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
In my opinion it simply is not possible to imply a term into this agreement which is contrary to the express term of the agreement which is an absolute transfer of the leases.
Next it was argued, as a further alternative, that to the extent that the written agreement does not embody the terms of the oral agreement, the first respondent only should have rectification of the written agreement.
As I have already found the written agreement is in terms consistent with the agreement which Mr Fuller said was agreed. His Honour has accepted Mr Fuller’s evidence and in those circumstances there is no oral agreement inconsistent with the written agreement and the question of rectification does not, in my opinion, arise.
As a further alternative it was argued that the first respondent entered into the written agreement as a result of the unconscionable conduct of the second appellant.
The alleged unconscionable conduct was particularised in the pleadings as being a failure on the part of the second appellant to explain to the first respondent prior to the first respondent’s execution of the written agreement, the true purport and effect of the agreement. That is inconsistent with the finding of the trial judge and therefore that particular cannot be relied upon for the relief sought.
It was further put that as part of the unconscionable conduct the second appellant inserted in paragraph F of the recital the words; “by way of security for” which had the effect of reassuring the first plaintiff that the written agreement embodied the terms of the oral agreement.
That submission cannot be accepted because of the finding that the written agreement did embody the terms of the oral agreement.
The whole of the first respondent’s claim in relation to the alleged unconscionable conduct of the second appellant assumes, contrary to the findings already made, that the written agreement did not record the terms of the oral agreement.
As I have already said the written agreement is consistent with Mr Fuller’s evidence, which the learned Trial Judge accepted and which I also accept, and therefore the written agreement cannot be the source of complaint in relation to unconscionable conduct on the part of the second appellant.
There is no direct claim by the respondents that the appellants were guilty of a breach of fiduciary duty to the respondents. In the plea that the second appellant was guilty of unconscionable conduct, it is pleaded that none of the appellants advised the first respondent that he should obtain independent advice as to the true purport and effect of the written agreement. However no claim is made, as I say, for any breach of fiduciary duty on the part of the appellants.
It has to be remembered that the respondents had previously transferred land to the appellants in satisfaction of the appellants’ legal fees. In my opinion this transaction was no different to that one. On the previous occasion when the first respondent was advised that he ought to get independent legal advice he declined and told the second appellant that he did not intend to expend further fees on obtaining independent advice. On this occasion the respondents were simply paying their legal fees by transfer of property. They were as aware or even more aware of the value of the property than the second appellant. The respondents were developers. The fact that they paid their legal fees by transfer of pieces of land did not mean that the appellants in accepting payment by way of land rather than by way of money were in breach of their fiduciary duty. In any event the case is not said to be one of breach of fiduciary duty.
In my opinion the true construction of this agreement is determinative of the issues between the parties on the appeal.
Although any claim for unjust enrichment was not pleaded nor apparently advanced before the learned Trial Judge the respondents claimed in their notice of contention the following:
“The respondents also rely upon the doctrine of Unjust Enrichment (refer to Restitution Law in Australia by Keith Mason and J W Carter - Butterworths 1995) and the law in relation to Restitution (refer to pages 812 onwards of Cheshire & Fifoot’s Law of Contract Sixth Australian Edition) and the law relating to Constructive Trusts (refer to pages 272 and 276 onwards of Cheshire & Fifoot’s Law of Contract, supra) for the same relief as claimed by the respondents in paragraph 19 hereof.”

Although it is true that in due course the appellants sold this property three years later for a significant amount of money and an amount of money significantly greater than the amount of the costs owing at the time of the agreement it is not clear how it is said that this gives rise to a claim for unjust enrichment. The respondents do not make it clear how the claim arises and within which category of restitution this factual situation comes.
It is simply not possible to discern from such a wide contention, which was repeated in that wide form in the respondent’s written submissions, how it is said that the respondents are entitled to succeed under the doctrine of unjust enrichment. However the concept of unjust enrichment was not pleaded and inquired into at the trial and, in my opinion, should not be allowed to be raised for the first time on appeal.
It follows in my opinion that the appeal in relation to the judgment entered against the appellants must be allowed and the judgment entered for the respondents set aside and in lieu thereof judgment dismissing the respondent’s claim be entered for the appellant.

The Cross Appeal

On 17 February 1981 the respondents entered into a contract for the sale of the whole of the land depicted in allotment 13 File Plan 8931 being portion of Certificates of Title Register Book Vol. 4161 and 4029 Folio 222 and Vol. 3520 Folio 111 to G K, M K & G A Bishop.

The sale price was $165,000 which was financed by the purchasers by the granting of three mortgages. The first mortgage was given to Bagot’s Executor & Trustee Company Ltd in the sum of $90,000. A second mortgage, being an all moneys mortgage, was given to the National Bank of Australasia Ltd. A third mortgage was granted to the respondents in the sum of $40,000 which sum was to bear interest at the rate of 15 per cent per annum. The principle sum was to be repaid by the purchasers on 29 April 1983. The third mortgage was transferred by the respondents to Esanda on 29 November 1992 apparently by way of mortgage and not absolutely. The settlement took place on 30 April 1981.

The male respondent had obtained a licence under the Water Resources Act on 22 September 1978. The licence permitted the male respondent to divert 493,316 kilolitres annually for domestic purposes. As at the date of settlement of the contract with the Bishops the water licence to divert was current but due to expire on 30 June 1981.

It was a term of the sale of the land to the Bishops that the respondents would also transfer the entitlement to the licence to divert water. That was done and the transfer was approved by the Minister of Water Resources. Thereafter the Bishops became entitled to the licence to divert water.

The licence when issued to the male respondent was subject to conditions. Licences were reviewed annually on application and expired on 30 June in any year. They were issued to a particular person for the land specified in the licence and were not transferable. The holder of an unmetered licence (which this was) was required to submit a quarterly return of water diverted. Water could only be diverted to the land specified in the licence.

On the transfer of ownership of all or part of the land specified on the licence that licence became null and void. When land the subject of an irrigation licence changed ownership, the licence issued to the previous owner automatically lapsed however, if the new owner made application for a licence for irrigation purposes, a licence would be issued under the same water allotment and with the same conditions as applied to the previous owner subject to any general licensing policy which might be in force at the time of transfer.

If land the subject of an irrigation licence was subdivided and any or all of the separate lots were sold the licence would automatically lapse. However, if applications were made, new licences would be issued for each lot endorsed with separate water allotments provided that the water use in each case was for irrigation purposes and the total of the separate allotments did not exceed the previous single allotment.

At the time of issue of the licence to the male respondent the policy of the department allowed for the amalgamation of water allotments. Where a person held two or more licences applicable to separate parcels of land and applied for an amalgamation of water allotments the licences could be endorsed with a condition that at the discretion of the holder of the licences portions of the water allotments could be diverted to any of the land referred to on those licences.

Where two or more persons held separate licences to divert water for either adjoining or separate parcels of land the several licences could be endorsed with a condition that the water allotments endorsed on the licences could be diverted in such proportions as may be provided for in a formal agreement between the parties to any of the land referred to on those licences.

The Bishops defaulted in payment on all three mortgages and on 9 November 1982 Mr Fuller, on the instructions of Mr Mount, wrote to the Bishops enclosing notices of default in relation to the mortgages. The notice of default showed that the quarterly instalments of interest had not been paid in July and October 1981 and in January, April, July and October 1982. The letter enclosing the notices of default was in the following terms:

“As you may be aware we act for Mr and Mrs David Mount.
Mr Mount informs us that he has had a number of discussions with you in relation to Sunnyside Farm and possible action to be taken by the other mortgagees. In consequence of those discussions Mr Mount has instructed us to issue the enclosed notices to you under the mortgage which you have given to Mr and Mrs Mount so that upon the expiration of the time limit in the notices and in the event of the default not being remedied our clients will be in a position to take such action as they may consider appropriate at that time having regard to what transpires in the interim period.”
Because the Bishops were in default in respect of all three mortgages, the respondents were at risk of not recovering the principal due under the third mortgage. The respondents therefore had spoken to the Bishops in relation to that matter and had discussed with the Bishops action to be taken in the event that the first and second mortgagees took action under their mortgages.

On 29 November 1992 the respondents transferred the mortgage to Esanda Limited. The consideration for the transfer was not proved, however, the recital to the agreement of 26 April 1983 suggests that the transfer was by way of mortgage and not absolutely.

At some time in early 1983 the respondents brokered an agreement between the Bishops and Antonio Graziano for the sale by the Bishops and the purchase by Mr Graziano of land the subject of the diversion licence. The purchase price was $122,500. The contract, which was never executed, was subject to some special conditions. One of the special conditions was a satisfactory agreement being entered into between the purchaser (Graziano) and David Jaunay Mount and Norma Phyllis Mount to secure the right of way and use of and later transfer of the fee simple of certain land.

The contract was also subject to the E&WS Department agreeing to grant a licence to divert 380,000 kilolitres of water from the River Murray to the said property.

A deed of agreement was drawn at the same time between the respondents and Antonio Graziano giving a right of way over a property. That agreement also provided that the respondents would transfer the property for no further consideration when the necessary approvals had been given.

Neither the contract nor the deed of agreement were signed.

The Bishops remained as owners and in occupation of the property. They continued to default under the three mortgages.

On 10 March 1983 the E&WS Department adopted a new policy in relation to the modification of the water allotment provisions of River Murray Irrigation Diversion Licences to allow approval to be given for transfers or amalgamations of all or part of annual water allotments in respect of different parcels of land, regardless of whether the land was under common or separate ownership provided that such transfers or amalgamations would not adversely affect the adjoining lands or the water resources of the River Murray.

The new policy which was published to all licensed irrigators on the River Murray carried with it details of how the transfer of irrigation water allotments might be achieved.

The new policy adopted by the Minister provided that where the owner of two or more parcels of land, at least one of which was subject to a licence to divert water for irrigation purposes, agreed to the transfer of all or part of a licensed water allotment to the other of those parcels of land, whether subject to licence or not, approval for such transfer might be given provided that the Minister was satisfied:

1.That there was a bona fide agreement between the holder of the licence and the person to whom the transfer of water allotment was to be made.

2.That the transfer did not seek to transfer any part of a licenced irrigation water allotment from land situated upstream from Wellington to land situated downstream.

3.That, where any part of a licensed water allotment was to be transferred to other lands, the licensee:

i)Had certified that the reduced water allotment was sufficient for the purposes for which he intended to operate the property.

ii)Had undertaken to advise any prospective purchaser of his land, after approval of the transfer had been given, of the terms of the agreement whereby the licensed water allotment was reduced.

The policy provided that where the whole of the licensed water allotment was to be transferred to other lands the licensee had to undertake to advise any prospective purchaser of his land, after approval of the transfer had been given, of the terms of agreement whereby the licence in respect of the land was cancelled.

The policy further provided that approvals for the transfer of all or part of a licensed irrigation water allotment between two or more persons would be effected only from 1 July or 1 January in any licence year and any application for transfer had to be received no later than 31 March or 30 September respectively to allow a minimum of three months for investigation by the E&WS Department and consideration by the River Murray Water Resources Advisory Committee, the South Australian Water Resources Council and the Minister of Water Resources.

The new policy provided, for the first time, for the transfer of licences to divert water to persons other than existing licence holders and other than for the purpose of amalgamation. That new policy gave those diversion licences a value which they previously did not enjoy.

The policy provided an opportunity for the respondents to purchase or to acquire the licence to divert water held by the Bishops. That opportunity did not exist under the previous policy.

On 11 April 1983 the respondents approached Mr Fuller in relation to the government’s new policy. Mr Fuller recorded two questions being asked of him. The first was whether Mr Mount could take an assignment of the Water Diversion Licence as collateral security for the mortgage. The second question asked was whether a perfected assignment could be effected before July 1, 1983.

A conference took place between Mr Fuller and Mr Mount on 13 April 1983 and on 20 April 1983 Mr Cummings, the solicitor in the employ of the appellants, had a telephone attendance on Marilyn Nobes of the Water Resources Branch of the E&WS Department. He requested from her details of the documentation which was required by the Minister before he would grant his approval to transfer a portion of a licence to divert water for irrigation purposes. He was told that the document ought to follow a normal memorandum of agreement and could be quite informal. Ms Nobes said that all that needed to be done was to recite the details set out in the document advising the new policy adopted by the Department. The agreement, she advised him, ought to contain a certificate by the transferor that the reduced water allotment was sufficient for the purposes for which the transferor intended to operate the property and that the transferor undertakes to advise any prospective purchaser of his land, after his approval of the transfer has been given, of the terms of the agreement whereby the licensed water allotment was reduced.

Ms Nobes informed Mr Cummings that when the agreement was produced to the Department it should be accompanied by a covering letter setting out details of the mortgages over the transferor’s property. She told him that the Department, as a matter of policy, was informing mortgagees of transferor’s property of the proposed transfer because of the possibility of the reduction in value of the mortgaged land. She told Mr Cummings this would have no bearing on the actual approval of the Minister, but if any of the mortgagees ‘violently’ objected the Minister would be reluctant to grant his approval for obvious reasons.

Mr Fuller prepared a memorandum of agreement between the Bishops and the respondents.

The agreement recited that the transferors were registered as the proprietors of land comprised in Certificate of Title Vol. 4204 Folio 749 and that the transferees (the respondents) were registered as the proprietors of the whole of the land comprised in Certificate of Title registered Vol. 4204 Folio 750. The recital continued that the transferors were the licensees of a River Murray Irrigation Diversion Licence No. 322 entitling the transferors to divert from the River Murray 493,316 kilolitres of water per annum. The recital provided that the transferor’s land was subject (inter alia) to a registered mortgage number 4720892 pursuant to which the transferees were mortgagees. The recital further provided that the transferees had transferred the transferees’ mortgage to Esanda Limited pursuant to a Memorandum of Transfer No. 4973500 as and by way of mortgage and absolutely.

Recital G provided:

“The transferors desire to transfer to the transferees a portion of the licensed water allotment comprised in the licence as and by way of security collateral to the interest of the transferees in the transferees’ mortgage and subject to the conditions hereinafter appearing.”
The agreement provided:

“1..... In consideration of these presents the transferors do hereby transfer to the transferees their right title estate and interest in part of the licensed water allotment comprised in the licence namely the entitlement to Two Hundred and Eighty Two Thousand (282,000) kilolitres of water (hereinafter referred to as “the transferred portion of the licence”) to be used by the transferees in connection with the transferees’ land.

2...... The transferees shall have and be entitled to the free and unrestricted benefit use and enjoyment of the transferred portion of the licence and shall be at liberty to deal therewith by way of sale or other disposition at such times and in such manner as the transferees shall in their sole discretion determine PROVIDED ALWAYS that in the event of the transferors paying and discharging all the monies and obligations on their part to be paid or discharged pursuant to the transferees’ mortgage prior to any such sale or other disposition of the transferred portion of the licence by the transferees as aforesaid then and in any such case the transferees shall take all the necessary steps to reconvey and subject to obtaining all the lawfully required approvals reconvey to the transferors the transferred portion of the licence at the cost and expense in all things of the transferors AND FURTHER PROVIDED ALWAYS that in the event of the transferees selling or otherwise disposing of the transferred portion of the licence as aforesaid the net proceeds received by the transferees in consequence thereof shall be applied by the transferees firstly in satisfaction of the monies owing and secondly for the benefit and advantage of the transferees (in the event of there being any surplus).
3...... The transferors do hereby certify that the reduced water allotment in consequence of the within transfer of the transferred portion of the licence is sufficient for the purposes for which the transferors intend to operate the transferors’ land.
4...... The transferors do hereby undertake to advise any prospective purchaser of the transferors’ land (after approval of the within transfer has been given by the Minister of Water Resources) of the terms of this Agreement in consequence of which the licensed water allotment pursuant to the licence has been or will be reduced.”

It is worth observing that again in this agreement there is an inconsistency between the recitals and the operative clauses. Recital G provides for the transfer to the respondents of the licensed water allotment “as and by way of security collateral to the interest of the transferees in the transferees mortgage”.

Paragraph two provides, first that the transferee shall have the free and unrestricted benefit, use and enjoyment of the licence and be at liberty to deal by way of sale or other disposition as the transferees shall determine. Secondly it provides that in the event of the Bishops paying and discharging all of the monies and obligations on their part to be paid pursuant to the mortgage prior to any such sale then the respondents shall take all necessary steps to reconvey to the transferors the transferred portion of the licence. Thirdly and rather inconsistently it provides that in the event of the transferee selling the transferred portion of the licence the net proceeds received by the transferee shall be applied in satisfaction of the monies owing under the mortgage and for any excess to be for the benefit and advantage of the transferees. The operative clauses seem to be a curious admixture of a conveyance absolutely and a conveyance by way of security. Whilst that needs no further consideration on this cross appeal, it does show a coincidental confusion between this agreement and the agreement the subject matter of the appeal.

In any event the operative clauses provided for the transfer to the respondents of 282,000 kilolitres of water. The transferors certified that the reduced water allotment was sufficient for the purposes for which the transferors intended to operate the transferor’s land. Further the transferors undertook to advise any prospective purchaser of the transferor’s land of the terms of the agreement.

The document was executed on 26 April 1983 by the Bishops and by the respondents and it was provided to the Department before the 30 April 1983.

The fact of the registration of the memorandum of agreement with the Department came to the attention of the first and second mortgagees who both wrote on 2 May 1993 to the Manager Water Resources.

The Farmers’ Co-operative Executors & Trustees Ltd (the holding company of the group which includes Bagot’s Executor and Trustee Company Ltd), the first mortgagee, advised the Department in the following terms:

“As mortgagees we are concerned that Graham Kenneth Bishop, Marilyn Kaye Bishop and Godfrey Arnold Bishop have applied on Tuesday 26 April 1983 to transfer 280 kilalitres (sic) of their water licence allocation of 490 kilalitres (sic) to a David Jaunay Mount or nominee who is a third mortgagee.
We have this particular property listed for sale as a mortgagee auction on Monday 9 May, 1983 and consequently the property is advertised including the full water licence.
…
The section 90 statements are required to be completed and in the agents hands at Murray Bridge two clear business days prior to auction and we will include in the conditions the sale is subject to the Minister of Water Resources agreeing to transfer the full 490 kilalitre (sic) water allocation.”
National Australia Bank wrote on the same date to the same person:

“In the past when valuing Murray River irrigation properties for lending purposes it has always been the practice to consider the licence attached to the land and with this in mind a lending value is then determined. Should a registered Proprietor be subsequently permitted to dispose of this license without the consent of a Mortgagee it could well be that a lenders security is reduced to well below the balance owing under his relative mortgage.
These facts are brought to your notice because the 1st Mortgagees of the above property (Bagot’s Executor and Trustee Co. Ltd.) are exercising their power of sale on 9 May.”
On 5 May 1993 the Department wrote to the Bishops in the following terms:

“I refer to the memorandum of agreement made on the 26th April 1983 between G.K., M.K. & G.A. Bishop and D.J. & N.P. Mount and lodged with the Water Resources Branch on the 26th April 1983. This has been treated as an application for the approval of the Minister of Water Resources to the proposed transfer.
Advice has been received that the 1st Mortgagees of the property, Bagot’s Executor & Trustee Co Ltd has listed the property, as described in Certificate of Title Book Volume 4204 Folio 749 allotment 13 Pt Section 163 and other land Hundred of Burdett, for sale by auction on Monday 9th May 1983. The 2nd Mortgagee, National Australia Bank has also advised of its interest in the property.
Please note that in respect of the above advice received and in accordance with the policy that a transfer can not be effected before the 1st July 1983, no further action can be taken in regard to the transfer application until the outcome of the auction is known.”
On the same day Mr Mount contacted Mr Fuller and told him that the auction which was to take place on 9 May 1983 had been cancelled. He informed Mr Fuller that he had an offer to buy the water licence and he told Mr Fuller he was negotiating the price.

On 12 May 1993 the National Australia Bank wrote to the Manager Water Resources:

“Further to our letter of 2nd May, 1983 we advise that the Mortgagee sale of the above property which was to be held on the 9th May did not take place due to a technicality in the serving of the relevant notices.
The Bank now proposes to exercise its power of sale as 2nd Mortgagee and to this effect Notice of Sale has already been served. After allowing for the statutory period of default the property will be advertised for one month and the auction sale should take place on or about the middle of July with settlement being 30 days thereafter.
As has been previously advised the Mortgagor has been in default since April of this year. We shall therefore be pleased if you will note your records accordingly and further delay considering approval of the application for consent to transfer 280,000 kilolitres of the licensed water allotment endorsed in Irrigation Metered Diversion Licence 322 G.K. & M.K. Bishop Allotment 13 Pt. Section 163 and other land Hundred of Burdett under advice to this office.”
The property was advertised for sale by L J Hooker Land Agents as a “Mortgagee Auction” for Thursday June 30. The advertisement included the following:

“68.92 ha. Freehold 68.92 ha.
…
Irrigation: Approx. 30.4 ha planted to Matador lucerne, underground mainline installed to water additional approx 10.5 ha two lines direct from River Murray with two electric motors and pumps 1.36 kilolitre concrete storage tank 490,000 kilolitre water allowance.
Improvements: Main home on solid brick 7 rooms plus conveniences, second home of concrete block, 5 rooms plus conveniences, 4 roomed workman’s quarters approx. 300 tonne hay shed, g.l. workshop with pit, large area of g.l. machinery-cover, g.l. storage shed and sundry other g.l. sheds.
Comments: This property is currently used for commercial lucerne growing but could be converted to vegetables or other uses. It is situated approx. 13 km from Murray Bridge with magnificent views overlooking river and distant Mt. Lofty Ranges. S/D into 6 paddocks and sheltered by rows of native trees.
Terms: 10% deposit on signing contract, balance on July 28.”
There is no doubt that the mortgagees saw the water diversion licence, which was then held by the Bishops, as enhancing the value of their security although strictly it may not have formed part of the security.

On 20 May 1983 Mr Mount left with Mr Fuller a letter addressed to the Manager Water Resources for Mr Fuller’s consideration and for settling.

Mr Mount was clearly anxious to have the letter sent to the Department. On 27 May 1993 he apparently spoke to a member of Mr Fuller’s support staff, ‘Robyn’. A note on Mr Fuller’s file records:

“David Mount rang today regarding the E. & W.S. letter.
He said that this letter is becoming particularly important now, because 4 weeks from the time that the auction collapsed they can put the land up for sale.
He said that the matter would have to be cleared up by the 5th of next month (which is next week) as this is when the 4 weeks expires.
He asked that this letter be hand delivered to Mr. Archer at the E. & W.S. on Monday the 30th. (He is seeing Mr. Archer on Tuesday).”
Mr Fuller settled that letter and returned it to Mr Mount who in turn delivered it to the Manager Water Resources on 30 May 1983.

I set out that letter:

“Thank you for your letter WR:IRM 322 5th May, 1983.
I have read the copy of the letter to Mr Bishop and note that you intend to delay further procedure until the outcome of the auction.
You are no doubt now aware that the auction has been postponed, but I expect that it will take place in about six weeks’ time.
In the meantime, I ask that you consider the transfer of the water as requested as I do not think that the proposed auction by a mortgagee has anything to do with the application for transfer approval. The licence clearly is not part of the mortgagee’s security.
The approval of the transfer would, however, still leave sufficient water to protect the first and second mortgagee, especially as the second mortgagee also has alternative security in the form of a house in Murray Bridge.
Only half the water has been used by Bishop, so the value to first and second mortgagee is unaffected by my transfer.
I do understand the problem created by your new policy.
I support your policy as it is imperative in my view that the water available be used to best advantage and the only way to do this is to allow independent free transfer.
I think you should control the number of licences and the quantity and use of the water, but you must relax your terminology with respect to your statement that water licence is a “privilege” granted “annually”.
Certainly it can be renewed annually, and usage monitored in that way, but I believe it improbable that you would ever cancel a licence. Cancellation would be inconsistent with the negotiability of the licences. I can imagine similar principles and policies applying to water licences as apply to Crown leasehold land.
Providing this is clear then lenders and borrowers can operate and the water will be used to best advantage for all South Australians.
Taxi licences are bought and sold. Egg licences are bought and sold. Water licences should be the same.
People will pay what it is worth to them, but they must be secure in their ownership.
I accept that your Department may feel obliged to advise all borrowers and lenders in respect of land to which a licence relates that steps should be taken to register a value and interest in all water entitlements, but the matter should then be left to the parties concerned while you administer the water movement only.
Back on the subject of the transfer from Mr. Bishop to me, please note that I did not make plain to you that besides requesting transfer for equity reasons, I am able to use the water on my own land adjacent to Mr. Bishop’s.
He has only used half his water for the last year as he only has half the area under licence.
I can use the half being transferred to me to water my own land.
I therefore have two reasons to request the transfer.
If he sells out, I wish to be able to sustain myself by watering my block.
Please therefore proceed immediately, as I wish to plant crops this winter.”
In the meantime on 25 May 1983 the E&WS Department had written to the Regional Manager of Murray Bridge advising him that a request had been received for the transfer of 282,000 kilolitres of the irrigation water allotment endorsed on water diversion licence number 322 held by G K and M K Bishop to allotment 14, part section 163 hundred of Burdett owned by D J and M P Mount. The Department requested that the Manager provide a report as required under the provisions of the new transfer policy.

Also, in the meantime, on 29 May 1983 G.K. & M.K. Bishop, the then licensees of the water diversion licence, applied for a renewal of the water diversion licence number 322. There was no suggestion that the application for renewal was for only part of the allotment. The application could only have been understood as an application to renew the water diversion licence for the whole of the allotment in respect of the property licensed.

On 7 June 1983, Mr David Nicolle, a partner in Playford Nicolle Burr & Co, solicitors for Farmers’ Co-operative Executors & Trustees Ltd (Bagot’s Executor and Trustee Company Ltd), contacted Mr Arthur, an officer of the E & WS Department and advised him that if the proposed transfer of the water allotment to D J and W P Mount proceeded his client would apply to the Supreme Court for an injunction directed to the Bishops and the Department restraining them from proceeding with processing the application. A file note apparently prepared by Mr Arthur records:

“I advised him that I was obliged to proceed with the application and in submitting the application to the Water Resources Advisory Committee I would indicate concern expressed by the Mortgagee of the property.”
On the same day Mr Arthur was contacted by a Mr John Anderson of Bagot’s Executor & Trustee Company Ltd who enquired of him whether it was possible for the licence to be transferred into the name of the Mortgagees. A file note records his response:

“I advised that they could make application, whether the licence would be issued would be determined by the Minister however I considered that there was a problem if we were to issue the licence in their name, Bishop could appeal and the Tribunal may issue him with a similar licence as in the Skipper case. (Highly unlikely event but it did happen and so I would not be altogether sure the Tribunal would not act in a similar vein).”
I will return to Mr Arthur’s reference to the “Skipper case”.

There can be no doubt that the first and second mortgagees viewed the water diversion licence as enhancing the value of their security. Moreover, they were very much alive to the respondents’ efforts to obtain that licence from the Bishops. It can be assumed from Mr Nicolle’s statement and from all the contemporaneous events that the first and second mortgagees would not have sat idly by whilst the Bishops effectively devalued the security to the sole advantage of the third mortgagees.

It is not clear from the evidence whether the Bishops were aware that a transfer of the water diversion licence might reduce the value of the property. Certainly it is not clear whether they understood that if a transfer of the licence did reduce the value of the security they would still remain liable on the personal covenants.

The agreement was such that the Bishops had everything to lose and nothing to gain. They could only regain the licence if they paid off the third mortgage. If they were not able to pay the principal and interest on the third mortgage the respondents were entitled to sell or dispose of the water licence and, if for a greater sum than the principal and interest due under that third mortgage, keep the proceeds. The agreement could not be said to be in the best interests of the Bishops. Indeed it was contrary to their interests.

At some time in June 1983, Graham Bishop, Marilyn Bishop and Godfrey Bishop entered into a contract to sell the property the subject of the mortgages to Burnco Trading Pty Ltd. The purchase price was $200,000 and settlement was to take place on 1 August 1983. An application for a licence to divert waters was made by the company in respect of that property seeking to divert 490,000 kilolitres. The date of that application was 7 June 1983 which suggests that the contract was signed on or about that time.

The contract was subject to a special condition in the following terms.

“This contract is subject in all things to a transfer being signed for the Transfer of the Water Lease No. 322 from the Vendor to the Purchaser. Such Transfer to be signed at Settlement.”
The persons signing on behalf of the purchaser were Mr Genders and Mr Wishart and it was those same two gentlemen who signed the application for a licence to divert water on 7 June 1983. It is not clear whether that application found its way to the E&WS Department.

Burnco Trading Pty Ltd was incorporated on behalf of the respondents. The respondents disguised their involvement in the company by having Messrs Genders and Wishart act as directors. The respondents, no doubt, did not wish the first and second mortgagees to know of their involvement in Burnco Trading Pty Ltd. The appellants claim that the respondents did not make it known to them that they were connected with this company although the male respondent denies that. The respondents instead advised the appellants that they had brokered a contract from Bishops to Burnco Trading Pty Ltd.

On 14 June 1983 the male respondent made a handwritten note in which he said that he had spoken to an officer of E&WS and told him that he wanted a transfer of the water licence by 1 July 1983 “by all means”. The note shows that the male respondent was told that there was “no way it would be thru (sic) on time”.

On 17 June 1983, the Farmers’ Co-operative Executors & Trustees Ltd (Bagot’s Executor & Trustee Company Ltd) wrote to the Manager Water Resources, Mr Killick in the following terms:

“Further to numerous telephone conversations with your Mr. C. Archer we confirm that we are again proceeding to offer the property for Mortgagee Sale known as “Sunnyside Farm” Murray Bridge in the names of Graham Kenneth Bishop, Marilyn Kaye Bishop and Godfrey Arnold Bishop.
The Auction is planned for 11 a.m. Thursday 30th June, 1983 at C.W.A. Rooms, Murray Bridge.
Our major concern is the application which has been lodged by the Bishops to transfer portion of his water licence allocation to David J. Mount or nominee, who has a beneficial interest in a third Mortgage.
We again state the sale is subject to the Minister agreeing to transfer the full 490 Megalitre water allocation. What guarantee do we as mortgagee have if the property is not sold at auction and may carry on after 1st July 1983? Therefore we consider that no transfer should be considered until a sale is effected.

On 28 September 1983 Licence No. 322 was issued to Mr Graziano in accordance with his request for a transfer of licence dated 30 June 1983.
On 1 November 1983 Mr Mount wrote to Messrs O’Loughlin Robertson & Co asking him to write “the letter to the E&WS”.
On 7 February 1984 Messrs O’Loughlin Robertson & Co wrote to the Manager Water Resources, E&WS Department. I set out that letter in its entirety:
“We act for Mr and Mrs D J Mount of Sunnyside via Murray Bridge.
As you are no doubt already aware, on the 26th April, 1983 our clients entered into an agreement in writing with Graham Kennneth Bishop, Marilyn Kaye Bishop and Godfrey Arnold Bishop of Sunnyside Farm, Murray Bridge whereby our clients agreed to take a transfer of portion of the water allotment contained in River Murray Irrigation Diversion Licence No. 322 from the Bishops. The total allotment under that licence was 493,316 kilolitres per annum and the agreement provided for our clients to take 282,000 kilolitres per annum of that allotment.
In accordance with your “Advice to all Licensed Irrigators” dated the 11th March, 1983 the agreement was duly lodged with your Department prior to the 30th April, 1983 for consideration with a view to the transfer being effected on the 1st July, 1983. The appropriate fee of $564.00 was paid to you on lodgment of that agreement.
The agreement complied in all respects with the criteria laid down by the Minister as set out in the news release issued by the Minister on the 10th March, 1983 and in the statement of new policies attached to your “Advice to all Licensed Irrigators” dated the 11th March, 1983.
The aspect of the matter which is disturbing to our clients is that they have not had any formal communication from the Minister or your Department as to the outcome of the proposal as set out in the agreement dated the 26th April, 1983. To compound the disturbing nature of the matter, our clients have been informed by the Bishops that their licence was renewed in July 1983, and we can only assume that that occurred without regard to our clients’ agreement.
The present position is most unsatisfactory and appears to be irreconcilable in that the Bishops’ licence has been renewed and yet our clients’ application has not been refused. Had it been refused we would have expected that 75% of the application fee would have been refunded in accordance with the policy statement issued by the Minister.
Our clients had speculated that consequent upon the renewal of Bishop’s licence in July 1983 it may have been the Minister’s intention to issue our clients with a licence for 282,000 kilolitres per annum in any event as at the 1st January, 1984, but this appears not to be the case.
On the face of it our clients have cause to feel that they have been treated unfairly and contrary to the Minister’s own policy statement and the criteria attaching to the transferability of licences. We have been instructed to write to you requesting clarification of the present position with respect to our clients’ agreement and application, and in particular to enquire as to what steps are proposed to be taken to provide our clients with the 282,000 kilolitre per annum allowance for which they have paid and which they still require for use in connection with their land as set out in the agreement dated the 26th April, 1983.
Your early reply is requested.”

It is hard to understand why so much time was allowed to elapse between settlement and 7 February 1984 but it would appear that the delay was the fault of the appellants.
The facts stated in the letter of 7 February 1984 appear to be correct. It was right to assert, as O’Loughlin Robertson & Co did in that letter, that they had no formal communication from the Minister or the Department as to the outcome of the proposal set out in the agreement dated 26 April 1983.
Moreover, as was stated, a new licence had been issued to the Bishops in July 1983 and indeed the licence had been cancelled and a new licence issued to Mr Graziano on 29 September 1983.
That letter was responded to by letter dated 28 February 1984. In that letter the Acting Manager of Water Resources wrote:
“I refer to your letter of 7 February 1984 in reference to the agreement for transfer of licensed water allotment entered into by your clients D J & N P Mount with G K, M K, & G A Bishop on 26 April 1983.
I enclose a copy of correspondence forwarded to G K, M K & G A Bishop on 5 May 1983, for your reference. A copy of the letter was also forwarded to your clients.
In consideration that no further advice was received from G K, M K, & G A Bishop other than the renewal of Licence to Divert Water received on 30 June 1983 and the advice received that a contract for transfer of ownership of the property endorsed on Annual Water Diversion Licence 322 was signed on 30 June 1983 to take effect on 30 August 1983, the application for transfer of irrigation water allotment was not further considered.
The Hon the Minister of Water Resources has absolute discretion in respect of the issue of annual licences and conditions.
In exercising that discretion in respect to the issue of annual water diversion licence 322 to the new owners of the property endorsed on the licence, the Minister took account of all the matters raised by your clients.
It is regretted that inadvertently the refund of 75% of the fee lodged by your client was overlooked when the issue of water diversion licence 322 was finalised.
Please find enclosed cheque to the value of $423.00.”

The appellants did not reply to that letter until 5 June 1984. It is not clear why so long a time was allowed to elapse but I think a fair reading of the correspondence would suggest further delay on the part of the appellants.
The letter of 5 June maintained that their clients had been treated unfairly and the letter returned the cheque which was enclosed in the letter from the EW&S Department dated 28 February 1984.
The letter concluded:
“Our clients feel that they have been dealt with unfairly in all the circumstances and look to you and the Minister to re-instate to them that to which they feel entitled and for which they have given good and valuable consideration. Obviously licence 322 is in all material respects irretrievable, but our clients invite you to consider the issue to them at no additional cost of a new licence for the water allotment of 282,000 kilo litres. We suggest that this would be a fair and equitable means of resolving our clients’ difficulties, and in this regard we await your early response.”

An internal memo of the E&WS Department of 24 September 1984 discussed the letter of O’Loughlin Robertson & Co of 28 February 1984 and the more recent letter from the solicitors dated 5 June 1984.
The internal memo concluded:
“The claim now made by the solicitors is considered a blatant attempt to seek a licence of considerable value to compensate him for his inability to regain monies loaned by way of a very ill-considered 3rd mortgage and not available to him, after satisfaction of the rights of the 1st and 2nd Mortgages, following the mortgagees sale of the land.
It is therefore RECOMMENDED that the claim be rejected and that a letter, in terms of the attached draft, be forwarded to O’Loughlin, Robertson & Co accompanied again by a cheque for $423.00 being the refund of 75% of the transfer fee paid with the original transfer application.”

On 9 October 1984 the Director General and Engineering Chief of the EW&S Department wrote to Mr Fuller in relation to this matter. He wrote:
“I refer to your letter of 5 June, 1984, addressed to the Manager, Water Resources, and advise that -
1...... reference to the “Advice to all Licensed Irrigators” dated 11 March, 1983, quoted in your letter of 7 February, 1984, will show
·.. that the Minister is not bound to approve any proposal for the variation of the terms and conditions of any licence as a consequence of a request to “transfer” all or part of a licensed water allotment, whether or not all criteria for approval have been met
·.. that any approval of requests for “transfer” may be effected from 1 January or 1 July only in any year

2.after all comments on the proposed transfer had been received action had been taken late in June, 1983, to seek the advice of the River Murray Water Resources Advisory Committee for submission, through the S.A. Water Resources Council, to the Minister of Water Resources.

3.on 30 June, 1983, the licence, the subject of the transfer application, lapsed and a copy of the Contract of Sale and Purchase of the subject land executed that day was received and an application from the owner and previous licencee was received. A licence for the 1983/84 year was issued accordingly.

4.no advice was received that the purchaser of the land had agreed to any action, which would affect his estate or interest in the land, subsequent to 30 June, 1983.

5.no action could be taken therefore in respect of a transfer approval to be effective from 1 July, 1983 without such agreement.

6.the issue of a licence to the purchaser of the land following settlement, in accordance with the Water Resources Act, 1976 as amended, the Regulations made thereunder and the promulgated management policies in respect thereof, did not require the knowledge of and consent to such action by the vendor or the proposed transferee.

Accordingly you are further advised that it cannot be recommended that the Honourable the Minister of Water Resources accede to your request that your client be issued with an additional licensed water allotment of 282 ML (sic) which would be clearly contrary to the policies for the management of the water resources of the River Murray.

A cheque for $423.00, being the refundable part of the transfer fee lodged in April, 1983, is again enclosed herewith.”
There the matter rested, notwithstanding entreaties by Mr Mount to Mr Fuller to keep the matter moving. I have no doubt during this period and perhaps through all of 1984 Mr Fuller failed to respond adequately and as quickly as would be expected of an ordinarily competent solicitor.

In any event it was clear by 28 February 1994 that the Minister had refused the application for a licence to divert water.

It seems to me that it is probably at that time that the appeal procedures commenced to operate because on that occasion the respondents had for the first time a clearly defined refusal. However that refusal was not given nor ever given in accordance with the regulations under the Act.

Neither the Act nor regulations specifically provide for a procedure whereby the Minister is obliged to publish the refusal to grant a licence or permit under the Act.

Regulation 49.6 provides:

“The tribunal shall not proceed or continue with the hearing of an appeal, notice of which was received more than six weeks after the date of service referred in regulation 49.5 unless the appellant proves that the service of the notice of decision or direction by the Minister was not so effected until a date not more than six weeks prior to the service on the tribunal on the notice of appeal.”
That regulation supposes that there is a formal service of the notice of decision or direction of the Minister from which the appeal is brought. However there is no other regulation dealing with such a procedure.

There are approximately three time frames when it could be said that the respondents were entitled to appeal to the tribunal from the decision of the Minister. The first is prior to the 30 June. The second is between 1 July and 30 August and the third is subsequent to the 1 September 1983.

I have already indicated that in my view no appeal could have been brought from any refusal by the Minister to grant a licence prior to 30 June because clearly enough no decision had been made prior to that time.

It is arguable that a decision was implicitly made in July 1983 by the Minister renewing the licence in the favour of G K & M K Bishop. That renewal as I have already indicated implicitly carries with it a refusal to grant a licence to the male respondent. However I have concluded that if an appeal had been brought within that time or an injunction sought the appeal would not have been allowed and the injunction would not have been granted.

The third period of time is subsequent to 30 August and in particular subsequent to 28 September 1983. On that last mentioned date a licence for the full entitlement was granted to Mr Graziano again thereby implicitly rejecting any transfer of the licence to the male respondent.

I am prepared to assume for the purpose of argument that there was a refusal by the Minister in July 1983 and that a right of appeal arose under s64 of the Water Resources Act. I am further prepared to assume, without deciding, that the failure to lodge a notice of appeal from that refusal was that of the appellants and that as well they failed to advise the respondents of any right of appeal that they may have from the refusal of the Minister to grant the respondents a licence in accordance with the request of 26 April 1983.

The question remains whether or not the assumed failure by the appellants to give that advice and to lodge a notice of appeal could have led to any loss to the respondents.

I am prepared to make those assumptions because in the end result I do not believe that there was any prospect whatsoever that the respondents would have succeeded in an appeal from the refusal by the Minister to grant them a licence in accordance with the request of 26 April 1983.

As I have already indicated, because of the policy adopted by the department, which in the circumstances was not unreasonable, there was no possibility that the respondent would obtain a licence to divert water prior to 30 June 1983. Therefore it had to be that the licence to divert water would, until 30 June 1983, remain current and in the hands of G K & M K Bishop.

The conditions to which a licence to divert water is subject are contained in schedule 1 to the regulations made under the Water Resources Act.

Those conditions are:

“1.All water diverted under this licence must, if a meter is affixed to the diversion, pass through that meter and shall be used on the land in respect of which this licence is issued for the purpose or purposes endorsed on the licence and may not be used on any other land or for any other purpose.

2.This licence shall be valid for the period endorsed on the licence subject to Condition No. 3 and 6 below and provided that the annual meter rent, if applicable, has been paid in advance.

3.This licence may be revoked, suspended or modified at any time in the circumstances and in the manner prescribed by the Water Resources Act and the regulations thereto.

4.Notwithstanding Condition No. 1 above where a Proclaimed Watercourse passes upon or adjacent to the land in respect of which the licence is issued the owner of that land has the right to divert or take, without charge, water from that watercourse for the use of himself, his family and employees for domestic purposes and for the purpose of providing drinking water for grazing stock on that land.

5.The holder of this licence shall not permit any water diverted or taken to be wasted.

6.If during the currency of this licence any change of ownership of the land, in respect of which the licence is issued, occurs, the licence automatically lapses. The person to whom this licence was issued must advise the Minister of Works within 14 days of the date of transfer of the land full details of the change of ownership.

The person to whom the land has been transferred may, subject to all the conditions of the lapsed licence, for a period of 30 days from the date of transfer of the land divert or take water but may use the water for only those purposes for which the previous owner used water; provided however that this right will cease on the date the lapsed licence would have expired if that date occurs less than 30 days from the date of transfer of the land.

The person to whom the land has been transferred may not divert any water after the expiration of the period referred to above unless the Minister has granted a diversion licence following receipt of an application for such licence in the prescribed form within 14 days of the date of transfer of the land or no later than the date of expiry of the lapsed licence whichever first occurs.

7.The holder of a licence in respect of an unmetered diversion shall, pursuant to the Water Resources Regulations, furnish returns of the quantity of water diverted.

8.This licence shall be subject to the provision of regulations 16.5, 16.7, 16.9, 16.10, 18.2 and 18.3 of the Water Resources Regulations.”

As can be seen condition 6 provides that if during the currency of the licence any change of ownership occurs the licence automatically lapses. In this case a change of ownership did occur during that period and on 30 June 1983. In those circumstances the licence automatically lapsed. If it was not on 30 June that the licence lapsed certainly it lapsed on 30 August 1983 when settlement occurred.

The conditions upon which G K & M K Bishop held the licence provided that in the event of a change of ownership of the land in respect of which the licence was issued the person to whom the land was transferred had a right to apply for the issue of a licence in the transferees name.

Whilst the licence may not form part of the security from a mortgagee’s point of view it is clear enough that the licence appertains to the land.

On an application for a licence to divert water the applicant has to identify the purpose of the proposed diversion namely irrigation, industrial, stock or domestic or for recreational or environment and must indicate if it is irrigation the plantings on the land and the annual crops. It is clear enough that the application identifies the land over which the diverted water will be used.

So also on an application for renewal of a water diversion licence the application talks of the location of the property which is licensed and the area of land which is to be irrigated and the method of irrigation.

The whole scheme contemplates that the Minister will, in granting a renewal of a licence or an application for licence to divert water, have regard to the land over which the diverted water is to be used.

In my opinion the scheme of the Act was such and the conditions of the licence were such that there was never any prospect that a stranger to the land would obtain a licence to divert water which was previously used for irrigating the land owned by G K & M K Bishop to the exclusion of the purchaser of the land from G K & M K Bishop.

I do not believe that there was any prospect that the Minister would have granted a licence whereby the purchaser of the property, Mr Graziano, was disadvantaged.

There was a further reason, in my opinion, why an appeal against the Minister’s refusal would have been unsuccessful. That is because of a finding made by the learned Trial Judge which in my respectful opinion was open to him. His Honour determined that although the male respondent said that he required the licence to irrigate part of his land that was not the predominant purpose of the male respondent’s wish to obtain the licence. Specifically the learned Trial Judge found that the male respondent wished to obtain the licence so that he would be able to sell it.

That finding was open to him on the evidence and was in my opinion fatal to any prospects that the male respondent might have had in any appeal against the refusal of the Minister to grant the male respondent a licence.

I say that because Mrs Cann, who was employed by the Water Resources Group Department of Environment and Natural Resources as a project officer and who was called by the respondents said that it was necessary to identify the land over which the applicant for a transfer wished the licence to divert water to operate. That was because it was necessary to determine the effect that the diversion of water would have in the overall scheme.

Mrs Cann said that the proposed resale of the licence by Mr Mount was inconsistent with the management policy of the Proclaimed Watercourse.

That is easy enough to understand. If a party was entitled simply to make an application for a licence to divert water for the purpose of immediately on selling it then a market would develop in such licences independently of any ownership of land adjacent to the Proclaimed Watercourse.

That could lead to a serious undermining of the whole policy of the Act because it would interfere generally with the management of the Proclaimed Watercourse and the diversion of water from it.

In my opinion there was never any prospect that Mr Mount would obtain a licence to divert water and therefore any failure by Mr Fuller or the appellants to advise him in relation to the fact that the appeal lay from the refusal of the Minister to grant a licence, all of which I have assumed, did not give rise to any loss or damage to the respondents. In that respect I agree with the decision of the learned Trial Judge.

It follows that the failure to give any advice relating to an appeal or an injunction was not causative of any loss during any period or at any time.

For all of these reasons at no time after 30 June 1983 was there even any prospect that of the respondents successfully appealing or obtaining an injunction to obtain the benefit of the licence.

The respondents however argued that even if Mr Graziano was entitled to a licence they also were entitled to a licence and on appeal would have obtained one. They relied upon a decision of the Water Resources Appeal Tribunal given on 8 March 1992; W H & R M Skipper v Minister of Water Resources (No. 42 of 1981) (supra).

The respondents’ argument was that Skipper’s case is authority for the proposition that two licences should have been issued, one to Mr Graziano and the other to the respondents.

In Skipper’s case a diversion licence (No. 439) was originally issued to licensees by the name of Byrnes in respect of five acres of citrus orchard, which were in Sections 1 and 16 in the Hundred Of Murbko. Section 16 was sold and the licence amended. In 1976 the Department was advised that a new partnership had been created comprising D J Byrnes and W H and R M Skipper and a request was made for a licence to issue in the name of that partnership. That was done. Apparently in 1980 the licence was issued in the names of the Skippers only. In 1981 the Department was advised that Section 1 and 21 owned by D J Byrnes had been sold to Mallee Grove Nominees Pty Ltd and there was a request for a transfer to that company.

The Department was not previously aware that the Skippers were not part owners of the land.

In the event the Department issued a licence to Mallee Grove Nominees Pty Ltd and refused the Skippers application for a licence. The ground of refusal was that the Skippers did not own land the subject of an Irrigation Water Diversion Licence.

The Skippers did not own any land to which a licence attached. They leased the land owned by Mr Byrnes and from 1980 were the sole licensees of the licence attaching to that land.

The Tribunal decided that it was not a pre-requisite for a person to own land before that person could become a licensee of a water diversion licence. It determined that the Skippers had been issued with a licence, had not contravened any terms of it and had applied for its renewal within the time prescribed and were therefore entitled to its renewal. However because a licence had already been granted to Mallee Grove Nominees Pty Ltd the Tribunal referred the matter back to the Minister for reconsideration of the decision “with the following directions as to the new matter that the Minister should take into account on that reconsideration, that is that the application for renewal of the Water Diversion Licence No. 439 dated 16 June 1981, should have been granted.”

The decision is peculiar to its own facts. The appellants were the holders of the licence at the time as a previous holder sought a transfer of the licence, which they did not then hold, to a third party. The appellants as holders of the licence were entitled to claim that their rights had been overlooked. The decision is not, nor could it be, authority for the proposition that two licences may be granted where before only one existed. That could not be the ratio of the decision because that would be contrary to the scheme of the Act, which is the conservation of water.

The facts are quite dissimilar to the facts in this case.

It follows that the failure of the appellants to advise the respondents of that decision and the failure to act on the decision is not a matter of any consequence in that it was not causative of any loss to the respondents..

I agree therefore with the decision of the learned Trial Judge that no damage has been established and that aspect of the respondents’ case has to be dismissed.

In my opinion therefore the cross appeal must be dismissed.

In my opinion the orders of the Court should be:

1) Appeal allowed.

2) Cross appeal dismissed.

a)The orders of the learned Trial Judge made on 19 December 1996 be set aside.

b)The judgment entered on 26 March 1997 for the respondents against the appellants in the sum of $58,420.90 and interest in the sum of $65,000 be set aside.

c)The orders for costs made on 26 March 1997 by the learned Trial Judge be set aside.

4)In lieu thereof it is ordered that:

i)The respondents’ action stand dismissed.

ii)Judgment be entered for the appellants.

I would hear the parties as to the costs of the trial and the costs of this appeal and cross appeal.

COX J

In my opinion the appeal in this matter should be allowed and the cross-appeal dismissed. I agree with the orders proposed by Lander J and with his Honour’s reasons.

BLEBY J

I agree with the orders proposed by Lander J on both the appeal and the cross-appeal, and I am in substantial agreement with the reasons that he gives.

[1998] SASC 6672

8 May 1998