Ocelota Ltd. Ltd. and Ors. v Water Administration Ministerial Corporation

[2000] NSWSC 370

CITATION:	Ocelota Ltd. Ltd. & Ors. v. Water Administration Ministerial Corporation & Anor. [2000] NSWSC 370
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 4134/99
HEARING DATE(S):	10/04/00 & 11/04/00
JUDGMENT DATE:	9 May 2000
PARTIES :	Ocelota Pty. Limited - 1st plaintiff N.F. & M.A. Harris - 2nd plaintiffs Pandiona Pty. Limited & Adantro Pty. Ltd. - 3rd plaintiffs Rolabah Pty. Limited - 4th plaintiff Poath Pty. Limited - 5th plaintiff Water Administration Ministerial Corporation - 1st defendant Colly Farms Limited - 2nd defendant
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	A.J. Meagher SC with P.E. Brereton for plaintiffs D.J. Hammerschlag & V. Kerr for 2nd defendant Submitting appearance for 1st defendant
SOLICITORS:	Magney & Rhodes, Sydney for plaintiffs Landerer & Company, Sydney for 2nd defendant
CATCHWORDS:	LANDLORD & TENANT - Rent - Payable in advance - Lease terminated during period for which rent paid - Whether proportion of rent recoverable - RESTITUTION - Rent paid in advance - Lease terminated without fault of lessee - Failure of consideration - WATER - Lease entitling lessee to use of water rights under authority under Water Act - Whether lessee as one holder of that authority could transfer water allocation - Whether lease authorised use of water only on leased property
LEGISLATION CITED:	Conveyancing Act 1919 s.144 Water Act ss.5(1), 5(2), 19, 20(1), 20B, 20E, 20F, 20V(1) & (2), 20AG, 20AH, 20AI(1), (2), (4), (5) & (6)
CASES CITED:	Ellis v. Rowbotham (1900) 1QB 740 distinguished
DECISION:	See par.84 of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Tuesday 9th May 2000

NO.4134 OF 1999
OCELOTA PTY. LIMITED & ORS. V. WATER ADMINISTRATION MINISTERIAL CORPORATION & ANOR.

JUDGMENT

INTRODUCTION

1 The second plaintiffs Norman Harris and Myrna Harris, and the other plaintiffs, which are companies associated with Norman and Myrna Harris and their family, between them own a number of farming properties in the Moree area. These properties are known as Moomin, Moomin Plains South, Hemmingford, Wathernoo North, Woodvale, and Krui. 2 Prior to 8 October 1999, the second defendant Colly Farms Limited (which I will call Colly) was the lessee from some of the plaintiffs of about 70 per cent of the total of the properties other than Krui, which I will call the Moomin properties, and about 50 per cent of Krui, under a lease for two years commencing 1 July 1999. The use permitted under the lease was the raising of irrigated and dryland cotton crops. 3 Both the Moomin properties and Krui are supplied with water from the Copeton Dam via Moomin Creek, by means of a joint water supply scheme under the Water Act 1912. There was in force in respect of the Moomin properties an authority No 90SA001270 (which I will call the Moomin Authority), with a water allocation for each "water year" (1 October to 30 September) of 19,440 megalitres for irrigation and 32 megalitres for stock and domestic, and in respect of Krui an authority No 90SA001419 (which I will call the Krui Authority), with a water allocation for each year of 15,552 megalitres for irrigation and 128 megalitres for stock and domestic. 4 Under the lease, Colly had the use and benefit, during the continuance of the lease, of these authorities, to the extent of 18,648 megalitres of the irrigation allocation under the Moomin authority and the full 15,552 megalitres of the irrigation allocation under the Krui authority, subject to reservation by the lessors of the first 200 megalitres under the Moomin authority. 5 The lease provided for an annual rental of $3 million, $1.5 million payable on 1 July and $1.5 million payable on 30 May. Colly paid $1.5 million on 1 July 1999. The lease contained a provision that, in the event that a named person ceased to be employed by Colly, the lessor could terminate the lease with one month's notice. The named person did cease to be employed by Colly, and on 9 September 1999 the lessor gave one month's notice of termination. It is common ground that the lease terminated on 8 October 1999, and that Colly vacated the leased properties on 8 October 1999. No part of the $1.5 million paid on 1 July 1999 has been refunded. 6 As at 22 September 1999, the available water allocations under the authorities were 15,621 megalitres under the Moomin authority and 5,724 megalitres under the Krui authority. On 22 September 1999, Colly applied to the relevant statutory body, the Water Administration Ministerial Corporation (known as the Ministerial Corporation), for approval to transfer these allocations to other authorities held by Colly. On 27 September 1999, the Ministerial Corporation indicated that it would approve this transfer. 7 These proceedings were commenced on 28 September 1999, and an ex parte injunction was granted on that day against the Ministerial Corporation granting approval to that transfer. That injunction was subsequently extended to the hearing. 8 In their statement of claim, the plaintiffs seek final orders preventing the transfer of the water allocation. By its further amended cross-claim, Colly seeks a number of remedies: compensation or damages in the event that it cannot transfer the water allocation; restitution of certain additional rent paid for the year 1 July 1998 to 30 June 1999; restitution of some or all of the $1.5 million rent paid on 1 July 1999; and relief under the Agricultural Tenancies Act. 9 I have now heard all issues in the case, except for issues arising under the Agricultural Tenancies Act, and quantification of any compensation on the basis of unjust enrichment.

THE WATER ACT

10 In order to understand the issues, it is necessary to have regard to provisions of the Water Act 1912, as in force at the relevant time, which inter alia regulates the use of water for irrigation in New South Wales. 11 Part 2 of the Act is entitled "Water Rights and Works". Division 1 of Part 2 is entitled "Interpretation", and it contains a number of definitions in s.5. Section 5(1) contains some relevant definitions, namely definitions of "Authority", and "Occupier" (para (a) only). Section 5(2) deals with references in the Part to "holders of an authority". The relevant parts of ss5(1) and 5(2) are in the following terms:

5(1) In this Part, except in so far as the context or subject-matter otherwise indicates or requires:
‘Authority’’ means an authority issued under Division 4 to construct and use a joint water supply scheme
...
"Occupier", in relation to land, means:
(a) the holder of any tenure of the land or, if it is shown that some other person is in actual occupation of the land, that other person;
(b) where the land is a public road within the meaning of the Roads Act 1993 - the council under that Act of the area in which the land is situated; or
(c) where the land is the site of a work to which this Part extends and the work is proposed to be, or is being, constructed on behalf of such a council or is under the care and management of such a council - that council.

(2) A reference in this Part to the holders of an authority shall be construed as a reference to the occupiers of the whole of the lands supplied with water obtained by means of a joint water supply scheme in respect of which an authority is in force and, where the supply work or conveying work that is the subject of the scheme is installed or constructed on other land, shall be construed as including a reference to the occupier of that other land, and a reference to a holder of an authority shall be construed as a reference to any one of those holders.

It is common ground that the authorities involved in this case relate to the use of a joint water supply scheme.

12 Division 4 of Part 2 is entitled "Joint Water Supply Schemes". Section 19 contains a general prohibition as follows:

19. No water shall be taken from any river or lake for the purposes of any joint water supply scheme except under authority granted in pursuance of the provisions of this Division.

13 Section 20 deals with who may apply for an authority. Section 20(1) is in the following terms:

20. (1) The occupiers of the whole of the lands supplied or proposed to be supplied with water obtained by means of a joint water supply scheme, and, where the land or lands on which the scheme is or is to be constructed is not in the occupation of one or more of those occupiers, the occupier of that land or, as the case may be, the occupiers of those lands, may apply to the Ministerial Corporation for an authority to construct and use the scheme and to take and use, for the purposes specified in the application, the water which may be conserved or obtained by the scheme.

14 Section 20A deals with the publication of notices of applications, and with objections and how they are dealt with. Section 20B deals with the grant of authorities, and is in the following terms:

20B. (1) If no objection to the granting of the application has been lodged pursuant to section 20A (1A) or (1B) or the Ministerial Corporation has received the report of the local land board or Magistrate upon any inquiry pursuant to section 20A (2), the Ministerial Corporation shall decide whether or not to grant the application.

(2) Where the Ministerial Corporation has decided to grant an application for an authority the Ministerial Corporation shall, on payment of the prescribed fee, issue to the applicants an authority for the joint water supply scheme for a period that, except in such circumstances as may be prescribed, does not exceed 10 years subject to such terms and conditions in respect of the taking of water as the Ministerial Corporation may deem fit and subject to such conditions in respect of the arrangements to be made between the applicants for the provision, construction, operation, maintenance and renewal of the works, the apportionment of the water taken by means of the works between the applicants to whom it is proposed to supply that water and the payments to be made in respect of each and all parts of the operations for the water supply as shall be determined by the Ministerial Corporation.

(2A)The Ministerial Corporation shall not issue an authority to the applicants therefor if any part of the land to which the application relates is not occupied by at least one of the applicants.

(3) If the applicants fail to pay to the Ministerial Corporation within the time prescribed the fee payable upon the issue of the authority the Ministerial Corporation may at any time thereafter reject the application. When an application is rejected under this subsection the deposit accompanying such application or any part of such deposit may, in the discretion of the Ministerial Corporation, be retained by it.

(4) ...

15 Section 20E deals with amendments to authorities. Sections 20E(1) and 20E(2)(a) are in the following terms:

20E. (1) If the holders of an authority apply to the Ministerial Corporation for an amended authority to exclude any part of the lands which may be supplied with water under the terms of the authority for the joint water supply scheme the Ministerial Corporation shall issue in respect of the remaining lands and in substitution for the existing authority an amended authority for the unexpired portion of the period for which the existing authority had been granted and subject to such terms and conditions as the Ministerial Corporation may deem fit. Any such amended authority shall be issued without payment of a fee.

(2) (a) If it be desired that an authority be amended so that land additional to the land specified in the authority may be supplied with water obtained by means of the work covered by the authority, the holders of the authority and the occupier of the additional land may apply to the Ministerial Corporation for an amended authority.

The section continues with provisions concerning notice, objections, etc, similar to those in s20A.

16 Section 20F specifies what persons are to have the benefit of the authority, and is in the following terms:

20F. (1) An authority shall be deemed to be held by and shall operate and enure for the benefit of the lawful occupiers for the time being of the lands specified in the authority and of the lands which are supplied with water obtained by means of the work covered by the authority. Such occupiers shall be bound by the terms and conditions of the authority and upon breach of any such terms and conditions the authority may be cancelled by the Ministerial Corporation.

(2) This section is subject to section 22D.


Section 22D, dealing with sale of land pending transfer of water allocation, has no relevance to this case.

19 Division 4B is headed "Volumetric Water Allocations Schemes". Section 20V(1) contains relevant definitions, namely those of "Entitlement", "Water Allocation" and "Year". Section 20V(2) contains a provision concerning references to "the holder of an entitlement". The relevant parts of s20V(1) and s20V(2) are in the following terms:

20V.(1) In this Division, except in so far as the context or subject-matter otherwise indicates or requires:

‘‘entitlement’’ means:
(a) a licence, permit, authority, irrigation corporation licence or group licence; or
(b) in relation to a trust, the right to take and use water conferred on the trust by section 38B;
...
‘‘water allocation’’, in relation to any entitlement, which authorises the taking of water from a water source which is subject to a scheme, means the quantity of water specified in the condition (as may be modified from time to time under this Division) attached to, or included in, the entitlement pursuant to section 20X (5) or section 20AB (1) (b) as being the maximum quantity which may, subject to this Division, be taken from that water source in any year under the entitlement for the purpose or purposes specified in the entitlement;
...
‘‘year’’, in relation to a scheme, means:
(a) a year commencing on 1 July; or
(b) if the Ministerial Corporation by order published in the Gazette specifies a different year for the scheme - the specified year.
...
(2) A reference in this Division to the holder of an entitlement includes:
(a) if the entitlement is an authority, a reference to each of the holders of the authority; and
(b) if the entitlement is the right of a trust to take and use water, a reference to the trust.

Notwithstanding the definition of "year" in 20V(1), it is common ground that water years for the purposes of the authorities in this case ran from 1 October to 30 September.

17   Section 20W empowers the Ministerial Corporation to declare water sources to be subject to volumetric water allocations schemes: it is common ground that such a declaration has been made in relation to the source of water in this case. 18   Section 20X deals with the determination by the Ministerial Corporation of water allocations in respect of entitlements; and subsection (5) requires, and attaches consequences to, "notice in writing served on the holder of each entitlement". It seems clear that s20V(2) means that, where the entitlement is an authority, that notice must be served on "each", that is "all", of the holders. There is a similar provision about service of notice in s.20XA(1), which deals with variations of water allocations. 19   Division 4C of the Act is entitled "Transfer of Water Allocations". Sections 20AG, 20AH, 20AI (1) (2) (4) (5) and (6) and 20AK are in the following terms:

20AG. This Division shall be construed with, and as if it formed part of, Division 4B.

20AH. (1) The holder of an entitlement (in this Division referred to as the ‘transferor’’) may, with the approval of the Ministerial Corporation, transfer the whole, or part, of the water allocation for the entitlement to the holder of another entitlement (in this Division referred to as the ‘‘transferee’’).
(2) A transfer may be a temporary transfer for a limited period before the transferred water allocation reverts to the transferor or may be a transfer without limitation as to duration.
(3) A transfer may be effected between different schemes only if the Ministerial Corporation is satisfied:
(a) that the transfer would not result in the transferee’s scheme being subjected to an unacceptable commitment; and
(b)that such other conditions as may be prescribed have been complied with. Application for transfer

20AI.(1) Except where an application may be made under subsection (2), application for a transfer shall be made by the transferee applying for a new entitlement (or, if the holder so desires in the case of an authority or a group licence, for entitlement) and a water allocation for the entitlement that:
(a) if the transferee is not already the holder of an entitlement comprises or includes the water allocation proposed to be transferred; or
(b) if the transferee is already the holder of an entitlement comprises the water allocation for the existing entitlement together with the water allocation proposed to be transferred.
(2) If the Ministerial Corporation agrees and subsection (3) is complied with, the Ministerial Corporation may accept and consider an application by a transferor or transferee for the transfer of a water allocation by way of an appropriate modification under section 20XA of the conditions to which the entitlements of the transferor and transferee are subject.
...
(4) The Ministerial Corporation may, in relation to an application for a transfer:
(a) require the transferor to provide such information and consents; and
(b) require the transferee to provide such information and evidence as are specified by the Ministerial Corporation.

(5) A requirement under subsection (4) may be complied with in any manner acceptable to the Ministerial Corporation but the Ministerial Corporation may decline to proceed with consideration of the application until the requirement is complied with.
(6) In determining whether or not to approve a transfer, the Ministerial Corporation may take into consideration such matters as it thinks fit including (without limiting the matters that may be considered) its opinion as to the social and economic effect that the transfer would have if approved.

20AK.(1) Where an entitlement effecting a transfer of a water allocation otherwise than by amendment of an existing entitlement is issued to the holder of an existing entitlement, the existing entitlement ceases to have effect and shall be cancelled by the Ministerial Corporation.
(2) The water allocation for the entitlement of a transferor is abated to the extent of the transfer and the condition to which the entitlement is subject is modified accordingly.

What is crucial to this case is whether "the holder of an entitlement" in s20AH means, where there is more than one holder of an entitlement, any one of the holders of the entitlement, or all of the holders of the entitlement.

20   The water allocations which I referred to early in this judgment are those fixed under Division 4B. They specify the maximum quantity of water that may be taken under the relevant authority in one water year; but limitations in the water supply may mean that less than those quantities are available to be taken. As from 1 October 1998, the Department of Land and Water Conservation introduced a scheme to systematise the limits of the amount of the water allocation that can be drawn at any time. As at 1 October 1998, each authority was treated as having an "account" equal to 150 per cent of its water allocation. Then, as water was drawn, the amount drawn was deducted from both the water allocation and the account. As the water supply was replenished by rain, an amount could be added to the account, up to a maximum of 150 per cent of the allocation. At any time, the holders were entitled only to draw the lesser of the quantities given by the allocation and the account. While the account might be increased during a water year due to rainfall, the allocation could not be increased during a water year; but a new allocation would start at the beginning of the next water year. Thus, at the end of a water year, the balance in the account was carried over to the next water year, and a new allocation began. 21   Accordingly, the effect of the proposed transfers in this case, if they had occurred on 27 September 1999, would have been to reduce the quantity of water in both the allocations and the accounts for the respective authorities, in respect of the remaining three days of the water year 1998 to 1999; and to reduce the account balance for the beginning of the 1999 to 2000 water year. In relation to the authorities to which the allocations were transferred, the transfers would have increased the amount available to be drawn over the remaining three days of the 1998 to1999 water year; and, probably more significantly, assuming no water was drawn in those three days, to increase the account balance for those authorities at the beginning of the 1999 to 2000 water year.

THE LEASES

22   The subject lease is the third between the same parties in relation to the same areas of land. The first was for a period of three years from 1 July 1994; and the second, entered into at the same time, was for two years from 1 July 1997. Clause 16.1.2 of the second lease was in the following terms:

The Lessor and the Lessee acknowledge that they have agreed in relation to this Lease and the Prior Lease, as recorded in Heads of Agreement made between them and dated 1st August 1994, that if any of the first, second and third year of the Term of the Prior Lease is or are Water Short Years then, in addition to the Term of this Lease, the Lessor hereby grants an additional lease of the Demised Premises to the Lessee ("the Additional Term"), for one additional year for each Water Short Year occurring during the Term of the Prior Lease, on the same terms and conditions as the Prior Lease and at the same Annual Rent.

23   It is common ground that the years ending 30 June 1995 and 30 June 1996 were "water short" years; so that, by force of that clause, the third lease came into existence. No new document was executed. The terms of this third lease are the same as those of the first lease. 24   Part 1 of the lease contains definitions. Relevant definitions in clause 1.1 are those of "The Demised Premises", "Developed Land", and "Water Rights". Those definitions are as follows:

"The Demised Premises" means the land described herein as the property leased and includes where the context so admits such of the improvements, fixtures, fittings, furnishings, plant, machinery and equipment (if any) from time to time installed therein or used in conjunction with the operations of the Lessee thereon and owned by the Lessor.

"Developed Land" means that part of the Demised Premises which can be irrigated as a result of the developments and improvements made by the Lessor in accordance with the requirements of all statutory authorities having jurisdiction in such matters and with such authorities' consents and which is available to the Lessee for planting cotton and commonly called "developed greenacres.

"Water Rights" means the water entitlements, licences and authorities over the Demised Premises applicable to the Developed Land granted by the New South Wales Department of Water Resources pursuant to the Water Act 1912 (as amended) being in respect of an area of approximately hectares and comprising thirty five (35) water entitlements comprised in two (2) Joint Water Authorities issued under Section 20B of the Water Act, details of which are as follows:-
LOCATION AUTHORITY NO ALLOCATION
"Krui" 1419 6 x 979
megalitres
"Moomin" 1270 9 x 972
megalitres
but subject to the reservation by the Lessor for the Joint Water Authority holders having the right to use the first two hundred (200) megalitres allocated in respect of those water entitlements, per annum relating or pursuant to Joint Water Authority number 1270 ("Moomin") for any purposes.

25   Part 3 of the lease deals with the annual rent. It is convenient to set out the whole of this Part, as follows:

ANNUAL RENT
3.1 The Lessee shall pay the Annual Rent reserved by this Lease to the Lessor or to such person, bank or corporation as the Lessor may from time to time in writing direct, without any deduction.

3.2 The Annual Rent shall be ($3,000,000) three million dollars which shall be payable by the Lessee to the Lessor in two instalments per annum namely:-
In respect of the first Lease Year
(i) a first instalment of $1.5 million on day of 1994; and
(ii) a second instalment of $1.5 million on 31st May 1995; and
In respect of the Second and subsequent Lease Years
(i) a first instalment of $1.5 million on 1st July in each Lease Year; and
(ii) a second instalment of $.t million on 31st May in each Lease Year.

3.3. The Lessor and the Lessee acknowledge that the Lessee has agreed to pay the Lessor the Annual Rent based and agreed on the Lessor's warranty and representation that:-
(i) there are available for the Lessee's permitted use of the Demised Premises, throughout the Term Lease, 5,300 developed green hectares comprised in the Developed Land; and
(ii) there is an allocation of 3.5 megalitres of water per developed green hectare per annum available for use by the Lessee

3.4 Additional Rent.
3.4.1 The Lessee shall pay additional rent ("the Additional Rent") to the Lessor for each Lease Year if the aggregate of water allocations relating and pursuant to the Water Rights and allocated free flows permitted by the Department in any crop growing season during a lease year in respect of the Demised Premises exceeds 3.5 megalitres per hectare of Developed Land.
3.4.2 In that event, the Lessee shall pay the Lessor the Additional Rent at the rate of $18.75 per megalitre per hectare of Developed Land received by the Lessee by the Department in excess of 3.5 megalitres per hectare, up to (but not in respect of any excess) 7 megalitres per hectare of Developed Land, to the intent, and it is agreed by the Lessor and the Lessee, that no Additional Rent shall be payable in respect of the said aggregate of the water allocations received by the Lessee which is in excess of 7 megalitres per hectare per Lease Year.

3.5 Rent Reduction
3.5.1 The Lessor and the Lessee agree (and confirm their agreement in the said Heads of Agreement) that in the event of the Lessee receiving from the Department during any crop growing season in any Lease Year an aggregate of water allocations from the Water Rights and permitted allocated free flows of less than 3.5 megalitres per green hectare of the Developed Land, then the Annual Rent hereby reserved by the Lessor and payable by the Lessee shall be reduced for that Lease Year at the rate of $40.00 for every megalitre per hectare by which the aggregate of any such water allocations and allocated free flows is less than 3.5 megalitres per hectare and pro rata for any part of a megalitre.
3.5.2 In the event of a reduction in the Annual Rent in the circumstances described in Clause 3.5.1, the number of megalitres per hectare by which the water supplied and received by the Lessee is or has been less than 3.5 megalitres per hectare, shall be calculated, on or before 31 May in each Lease Year and the reduction of the total Annual Rent shall be made by the Lessee deducting the amount of that reduction from the second rent instalment in the Lease Year to which the reduction in the Annual Rent applies, on 31 May in that Lease Year.

26   Part 4 deals with the permitted use of the premises. Clause 4.1 is in the following terms:

The Lessee will not use or permit to be used the Demised Premises for any purpose other than the growing of irrigated and dryland cotton crops.

27   Part 5 deals with maintenance, repair, and alterations, and cl.5.1 sets out provisions binding the lessee in relation to agricultural land: Clauses 5.1(a), (e) and (f) are in the following terms:

Provisions Applying to Agricultural Land
The Lessee shall:
(a) personally or by persons with proper skills, cultivate and manage the Demised Premises in a proper and husband-like manner and preserve and maintain the Demised Premises in a proper and efficient state of improvement and cultivation.
...
(e) comply with any conditions attaching to the Water Rights and pay all metered costs including minimum water charges and all levies for water used by the Lessee on the Developed Land.
(f) refrain from any act which would or could result in the forfeiture of the Water Rights and on the expiration or sooner determination of this Lease do all things and sign all documents reasonably within the power of the Lessee to do so or sign and procure its Sub-Lessees to do or sign for the purpose of vesting in the Lessor or its nominees the Water Rights.

Clause 6.9 contains a further obligation on the lessee to preserve and maintain the demised premises in a proper and efficient state of cultivation, to somewhat similar effect to clause 5.1(a).

28   Part 8 of the lease contains restrictions on assignment, sub-lease etc. It begins with the following prohibition:

The Lessee shall not during the Term assign, transfer, sub-lease, mortgage, charge or otherwise deal with the Lessee's interest in the Demised Premises (or any part of it), or any act or deed procure any of the foregoing, without obtaining the prior approval of the Lessor.

It continues by setting out the circumstances in which the lessor is bound to give approval.

29   Part 10 deals with water rights, and it is convenient to set that part out in full:

10.1 The Lessor shall pay all water licence fees for renewal of the Water Rights attaching to the Demised Premises during the Term of the Lease.

10.2 The Lessee shall pay all water charges, fees and accounts payable for the usage of water allocations arising under or pursuant to the Water Rights the use of which is available to and used by the Lessee.

10.3 In the absence of default by the Lessee:

(a) The Lessor warrants and represents to the Lessee that the Demised Premises has the benefit and use of the Water Rights pursuant to which allocations of water are attached to and benefit the Demised Premises from year to year and that the Lessee shall have full and exclusive rights to the Water Rights, entitlements, allocations and benefits attaching and relating thereto for the Term of this Lease;

(b) the Lessor shall keep the Water Rights current and in good standing and in full force and effect throughout the Term of the Lease;

(c) the Lessor shall give the Lessee and/or the nominees of the Lessee the full and exclusive use benefit and enjoyment of the Water Rights during the continuance of this Lease without interruption or disturbance from the Lessor or any person lawfully claiming through or under the Lessor;

(d) the Lessor shall ensure that the terms and conditions relating to the Water Rights shall not be changed without the approval in writing of the Lessee;

(e) the Lessor shall give the Lessee, free of rental or licence fee or other payment during the Term of this Lease, the free and uninterrupted use and enjoyment of all pumps, motor engines, machinery and other irrigation installations located on the Demised Premises at the commencement of this Lease.

30   Part 11 deals with default and termination; and clause 11.1(b) provides that where the lessee is in default, the lessor may inter alia convert the unexpired portion of the lease into a tenancy from month to month, to which the provisions of clause 12.5 apply. 31   Part 12 is headed "General". Clause 12.5 deals with holding over, and is in the following terms:

In the event of the Lessee continuing to occupy the Demised Premises after the expiration or sooner determination of the Term with the consent of the Lessor, then the Lessee shall become a monthly tenant only of the Lessor but (unless otherwise agreed) at an Annual Rent equal to one twelfth of the aggregate of the Annual Rent payable by the Lessee for the last Lease Year of the immediately preceding Term and otherwise on the same covenants conditions and stipulations, mutatis mutandis, as are herein contained or implied accepting any option to renew which shall be deemed expressly excluded.

32   Clause 12.13 deals with crop growing on termination, and is in the following terms:

12.13.1 In the event that on the expiration or earlier determination of this Lease otherwise than by reason of the default of the Lessee, there shall be growing on the Demised Premises a crop or crops, the Lessee, free from undue interference from the Lessor or any person claiming under or through the Lessor, may as a Licensee at will only of that part or those parts of the Demised Premises on which the crop is or the crops are located and to such parts of the Demised Premises as are reasonably necessary to gain access to the crop or crops, care for and harvest that crop or those crops and remove the Lessee's equipment machinery and property, provided that the Lessee, in exercising this right, shall in no way otherwise interfere with the occupation and use of the Demised Premises by the person entitled to occupy and use the same for that time or times.

12.13.2 The Lessee shall pay as such Licensee, to the Lessor as Licensor, a licence fee monthly in advance which bears to one twelfth of the Annual Rent current on the date of expiration or earlier termination of the Lease, the same ratio as the area of crops being tended and/or harvested by the Lessee, bears to the total area available for cropping on the Demised Premises.

12.13.3 Following the final harvest of a crop by the Lessee whether occurring prior to the expiration or earlier determination of this Lease, or whether occurring in accordance with the provisions of 12.13.1 and 12.13.2, the Lessee shall be responsible for the slashing and pulling of any stubble remaining after such harvest.

33   Clause 12.18 deals with abatement of rent, in the following terms:

In case the Demised Premises or any part thereof shall, at any time during the Term be destroyed, or damaged by civil commotion or the Queen's enemies, without any neglect or default on the part of the Lessee, so as to render the Demised Premises, wholly or partially unfit for occupation or use, the rent hereby reserved for a fair and just proportion thereof, according to the damage sustained, shall be suspended and cease to be payable so long as the Demised Premises shall remain unfit for occupation or use by reason of such damage, and, in the event of any difference between the Lessor and the Lessee as to the amount of rent or other moneys assessments or rates payable, such difference shall be referred to the arbitration of a single arbitrator willing to act nominated for that purpose by the President for the time being of the New South Wales Law Society pursuant to the provisions of the Commercial Arbitration Act PROVIDED ALWAYS THAT if the Demised Premises shall be destroyed or so damaged as aforesaid that the Demised Premises shall be wholly unfit for occupation or use by the Lessee for the purpose aforesaid then and in such case the Lessor or the Lessee may within one month thereafter by notice in writing to the other of them, terminate this Lease but without prejudice to any rights which might have accrued to either party prior to such determination.

34   Part 14 contains lessor's further warranties and agreements. Clause 14.1.2 is in the following terms:

14.1.2 The Lessor agrees with the Lessee that included in the Lease of the Demised Premises are all the following improvements, buildings and facilities for the use and benefit of the Lessee during the Term of this Lease.
At "Woodvale "
Three cottages

At "Hemmingford"
Main house and adjoining sheds.

At "Krui"
Main house
Workshop
Four cottages
One set of employees' quarters

In addition to the above accommodation and facilities, the Lessor hereby grants to the Lessee the exclusive right of occupancy and use of the main house on the property known as "Wahroonga" for the same term as the Term of this Lease.

35   Finally, Part 20 deals with the consequences of change in control and senior management personnel; and it is in the following terms:

20.1 If at any time during the term of the Lease the CFM Cotton Fund of which Commonwealth Funds Management Limited (CFM) is the present trustee, is not the registered holder of (or beneficially entitled to) more than fifty percent of the issued shares in Colly Farms Cotton Limited (the parent company of the Lessee), then the Lessee shall provide the Lessor with a bank guarantee issued by a suitable Australia domiciled bank in respect of and for an amount equal to the second instalment of the annual rent, namely an amount of $1.5 million payable by the Lessee on 31 May in each year.

20.2 In the event of David Dickson Farley ceasing, for any reason whatsoever, to be employed in a senior management role in the Lessee then the Lessor reserves the right to terminate the Lease of the Demised Premises to the Lessee on one (1) month's notice in writing to that effect.


The termination of the lease which occurred was based upon clause 20.2: Mr Farley did cease to be employed in a senior management role by Colly.

OTHER FACTS

36   During the 1998/1999 lease year, that is, the last year of the second lease, the water allocations permitted during the year in respect of the demised premises amounted to 39,861.5 megalitres. Accordingly, pursuant to clause 3.4, Colly became liable for additional rent amounting to $347,812.50. On 21 June 1999, Colly paid to the lessors $139,006.35, being the additional rent less agreed costs payable by the lessors of $208,806.15. It appears however that Colly did not use the whole of the water allocation permitted during the 1998/1999 year because the cropping area was reduced during that year. 37   Each year, one cotton crop is planted and harvested. Planting generally takes place over about 20 days, commencing between about mid-September and mid-October each year. Harvesting takes place over about 30 days, commencing between about 15 March and 15 April in the year following planting. Ideally, a cotton crop requires about seven megalitres of water per hectare; but may be grown using about 3.5 megalitres of irrigation water per hectare, particularly if there is good rainfall. 38   Of the portions of the Moomin properties and Krui retained by the lessors, only the farm known as Moomin Plains South was suitable for the growing of cotton. About 700 hectares of this property was used for cotton growing. 972 megalitres from the Moomin Authority was used for irrigating the cotton crops on this property, with additional water coming from other authorities. During the 1998/1999 cotton growing seasons, some of the lessors carried out irrigated cotton farming on this property: they used some but not all of the 972 megalitre water allocation. Accordingly, part of the water allocation from the Moomin Authority that was the subject of the transfer application made by Colly on 22 September 1999 included water that was available for use by the lessors, that is, the remainder of this 972 megalitre water allocation. 39   When the lessors gave notice terminating the lease, it was their intention to plant cotton on the demised premises, and this subsequently happened. When they took occupation on 8 October 1999, some preparation for planting cotton had been done by Colly, including the use of water to moisten some of the land. Some of the paddocks had been cultivated, some fertilised and some pre-irrigated. The cotton crop planted by the lessors on this property was about to be picked at the time of the hearing. 40   When the lessors retook possession of the demised premises, there was a substantial amount of water in a dam called the Woodvale Storage, at least part of which had been drawn pursuant to the authorities in the previous year, in respect of which the additional rent had been paid, as mentioned earlier. That water has since been used by the lessors. 41   There was evidence from Cliff Brown, a real estate agent of Moree, that between about early September and mid-October 1999, he acted as agent in the sale of approximately twelve to thirteen thousand megalitres of irrigation water in the Gwydir Valley region. Of those sales, 11,000 megalitres were sold by Colly. The majority of those sales were at the rate of $50 per megalitre. Some were also sold for $40 and $45. Mr Brown expressed the opinion that it may have been possible to find purchasers for a further 5,000 megalitres at $50 per megalitre, but if a further 16,000 megalitres had been available it would only be saleable at a substantial discount, selling in the region of $25 to $35 per megalitre. It was possible that some might not have been sold at all. However, in about mid-October 1999 there was heavy rainfall in the region. From that time until about mid-February 2000, Mr Brown did not receive any request to purchase or sell any water parcels.

ISSUES

42 The first issue for determination is whether it was possible for Colly to transfer the allocations, in respect of which it sought consent on 22 September 1999. The plaintiffs' contention was that this was not authorised by the Water Act, and in any event was contrary to the terms of the lease. 43 The next issue is whether Colly is entitled to damages for misrepresentation or breach of warranty, if it is unable to transfer the allocation. 44 The third issue is whether Colly can recover the additional rent paid in the 1998 to 1999 lease year, for water which it did not use. 45 Finally, there is the question whether Colly is entitled to recover some or all of the $1.5 million dollar rent instalment which it paid on 1 July 1999. Colly claims to be entitled to recover at least some of that amount on the basis of the construction of the lease, an implied term in the lease, and restitution grounded in unjust enrichment and/or failure of consideration. In relation to all these claims, Colly places some reliance on s144 of the Conveyancing Act, which is in the following terms:

144(1) All rents, annuities, dividends, and other periodical payments in the nature of income (whether reserved or made payable under an instrument in writing or otherwise) shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly.

(2) The apportioned part of any such rent, annuity, dividend, or other payment shall be payable or recoverable in the case of a continuing rent, annuity, or other such payment, when the entire portion of which such apportioned part forms part becomes due and payable, and not before; and in the case of a rent annuity or other such payment determined by re-entry, death, or otherwise, when the next entire portion of the same would have been payable if the same had not so determined, and not before.

(3) All persons and their respective executors, administrators, and assigns, and also the executors, administrators, and assigns respectively of persons whose interests determine with their own deaths, shall have such or the same remedies, at law and in equity, for recovering such apportioned parts as aforesaid when payable (allowing proportionate parts of all just allowances) as they respectively would have had for recovering such entire portions as aforesaid if entitled thereto respectively:

Provided that where any person is liable to pay rent reserved out of or charged on lands, that person and the said lands shall not be resorted to for any such apportioned part forming part of an entire or continuing rent as aforesaid specifically; but the entire or continuing rent, including such apportioned part, shall be recovered and received by the person who, if the rent had not been apportionable under this section or otherwise, would have been entitled to such entire or continuing rent; and such apportioned part shall be recoverable from such lastmentioned person by the executors, administrators, or other parties entitled thereto under this section by action or suit.

(4) Nothing in this section shall render apportionable any annual sums payable under policies of assurance of any description.

(5) This section shall not extend to any case in which it is expressly stipulated that no apportionment shall take place.

(6) This section extends to and includes deeds, wills, and other instruments that were made before, but came into operation on or after the twenty-fourth day of July, one thousand nine hundred and five (being the day of the commencement of the Apportionment Act 1905).

CAN THE ALLOCATIONS BE TRANSFERRED?
Submissions

46 Each side has provided a written outline of submissions, which I will leave with the papers. I will be brief in stating the submissions of the parties. 47 Mr Meagher SC submitted that the effect of s20F of the Water Act was that all occupiers for the time being of the lands specified in the authority were holders of the authority. Section 20V(2) meant that the reference to "holder" in s20AH(1) must be a reference to "each of the holders", that is, to all of the holders. Plainly, it was the intention of s20X and s20XA to require service of notices on all the holders of an authority; and plainly, where s20AH(1) referred to a transfer "to the holder of another entitlement", it must be referring to a transfer to all the holders of that other entitlement. For those reasons, he submitted, it was only all the holders of the entitlement who could transfer the whole or part of the water allocation for that entitlement under s20AH(1). 48 Mr Meagher further submitted that the terms of the lease were inconsistent with Colly transferring part of the water allocations. He pointed out that the effect of a transfer would be a modification of the conditions of the authority itself: ss20AI(2) and 20AK of the Water Act. Clauses 10.3(b) and (d) indicated that the lessee's entitlement under the lease to use the water rights did not extend to an entitlement to have the water rights modified or amended. Furthermore, clauses 3.3, 5.1, 10.2 and 10.3 made it clear that the entitlement was only to use the water rights on the demised premises themselves. Mr Meagher also submitted that the authorities touch and concern the demised premises, and are therefore part of the demised premises: see Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439 at 13,446-7. A transfer of any part of the water allocation attached to the authorities would be a transfer of part of the lessor's interest in the demised premises, in breach of Part 8 of the lease. 49 Mr Hammerschlag for Colly submitted that the sole issue under the Water Act was the plaintiffs' contention that Colly had no standing to apply to have the allocations transferred, and/or that the Ministerial Corporation did not have power to approve such a transfer. Mr Hammerschlag submitted that s20V(2) made it clear that each of the holders of the authority, that is, any of them, could apply to have the allocation transferred. Any other interpretation would involve practical difficulties. The occupation of part of the land covered by an authority could change from time to time, and may be for short periods only. If all temporary occupiers had to join in every transfer, it would raise considerable practical difficulties. Section 20XA(1) of the Act made it clear that the Ministerial Corporation could itself, without application by anyone, vary an authority by reducing the allocation; so it must be able to do the same thing in response to an application by one of the holders of the authority. This was confirmed by the terms of s20AI of the Act, referring to the Ministerial Corporation requiring inter alia "consents", and taking into consideration matters including "the social and economic effect" that the transfer would have.

50   Turning to the terms of the lease, Mr Hammerschlag submitted that the "demised premises" and "developed land" did not include the water rights. The water allocations which Colly sought to transfer had been paid for by Colly. The intention of lessor and lessee was that the lessee, for the term of the lease, have the whole benefits of the allocations referred to in the definition of "water rights". Clause 10.3 confirmed that Colly was entitled to these water allocations: one of the rights granted by clause 10.3(a) was to make an application to transfer the allocation to other premises; and the reference to "nominees" in clause 10.3(c) confirmed that the water did not have to be used by Colly on the demised premises. The lessor agreed that it was the lessee who should have the full and exclusive entitlement to the water rights during the term of the lease: the lessee was doing no more than exercising these rights which had been sold to and paid for by it. In the lease, "water rights" meant the authorities, not allocations made under them; and what was sought to be transferred was an allocation, not the entitlement itself. Instead of transferring the allocations, the lessee could, in the remaining three days of the water year, have pumped the water out and used it on the demised premises: the effect on the lessor would have been precisely the same.

51   In reply, Mr Meagher submitted that water could be used on the demised premises only consistently with proper farming practices: see clauses 4.1, 5.1(a) and 6.9. Any use other than proper use for irrigation would also be inconsistent with the conditions of the authority itself. Mr Meagher also submitted that the reference to "nominees" did not support Colly's contentions: clause 5.1(a) contemplated that "farming" including the use of water rights could be by "persons with proper skills".

Decision

52 Section 20F of the Water Act means that these authorities were held by the lawful occupiers of all the land specified in the authorities; and it is clear that at least some of the plaintiffs were occupiers of some of the Moomin properties and of part of Krui. It is common ground that, by agreement between the lessor and lessee under the subject lease, the lessee was given the benefit, during the term of the lease, of the whole of the irrigation allocation under the Krui authority, and 19/20ths of the irrigation allocation under the Moomin authority; but that does not alter the situation that, under the Act, the holders of the authorities included at least some of the plaintiffs. Furthermore, there is no provision in any of these authorities, inserted pursuant to s20B(2) of the Act, which limits the rights, to the authorities or the allocations thereunder, of any of the holders other than Colly. 53 Under s20AH of the Act, the transfer must be by the "holder". Section 20AH is in Part 2 of the Act, and s5(2) provides that reference in Part 2 to a holder of an authority shall be construed as a reference to any one of those holders. However, s20V(2) provides that a reference in Division 4B (and therefore, pursuant to s20AG, in Division 4C) to the holder of an authority includes a reference to each of the holders of the authority. In my opinion, where s20X and s20XA require service on "the" holder of each entitlement, the definition in s20V(2) makes it clear that the service must be on each of the holders of the entitlement, that is, on all of them. The use of the definite article "the", rather than the indefinite "a", makes it clear that the section 20V(2) definition rather than the s5(2) definition is to apply; and in any event, s20V(2) would probably prevail over s5(2) if there were an inconsistency, because of its more specific application to Divisions 4B and 4C rather than the whole of Part 2. Turning to s20AH itself, if one simply substituted, for "the holder" where it first appears in s20AH(1), the words "each of the holders", the provision could be read as enabling each one of the holders of an entitlement, without the participation of others, to transfer the water allocation for the entitlement. However, in my opinion, the better view is that it is not each holder, considered individually, who may transfer, but rather each of the holders considered collectively who may do so, that is, all of the holders. 54 In the first place, it is to be noted that s20AH does not, as suggested by Mr Hammerschlag, provide for an application for transfer, with the transfer itself to be effected by the Ministerial Corporation: what it provides for is the transfer by the holder, not the Ministerial Corporation. The role of the Ministerial Corporation is only to approve the transfer. The concept of transfer suggests that it is the person or persons entitled to what is transferred who must effect the transfer: that is, in this case, all of the holders. 55 Secondly, the transfer is made to "the holder of another entitlement": substituting the definition in s20V(2), this means that the transfer must be to each of the holders of that other entitlement, and it seems clear that this must mean all of the holders. This is confirmed by s20AI, which contemplates either that the transferee apply for a new entitlement, or that the benefit of the transfer be given effect to by a modification under s20XA of the conditions to which the entitlements of the transferor or transferee are subject; and s20XA refers in turn to s20X(2)(b) and s20AB(1)(a), which deal with the maximum quantity of water which may be taken under the entitlement, but do not contemplate any differentiation between the rights of different holders of the authority. Thus, there seems to be no possibility that the transfer could be to some only of the holders of the recipient authority. In my opinion it would be strange if "the holder" had different meanings in the two places where it appears in s20AH(1); and this confirms that it refers to all of the holders, on both places. 56 Thirdly, it is unlikely that the legislature would have intended to give one holder of an authority the power to transfer away some or all of the water allocation under that authority, to the detriment of other holders; particularly where it is clear that any application under s.20E to amend an authority must be by all the holders. 57 As submitted by Mr Hammerschlag, the Ministerial Corporation can vary the conditions of authorities under s20XA, without the need for any application by the holders. However, there is no suggestion in this case that the Ministerial Corporation has done other than give consideration to approval of a purported transfer pursuant to s20AH. Furthermore, the reference to "consents" in s20AH(4) does not, in my opinion, suggest that the transfer may be by less than all the holders of the authority. There are many other persons whose consent might possibly be considered relevant by the Minister, including owners of land not in occupation. 58 For those reasons, in my opinion s20AH of the Act did not authorise Colly alone to transfer any of the allocation under the relevant authorities. Of course, it would be possible that agreement between the holders of an authority would produce an entitlement of one of those holders to compel the others to join in a transfer. As I understand it, Colly has not contended that it has the benefit of such an agreement in this case. In any event, in my opinion, the terms of the lease in this case would not constitute such an agreement. Indeed, as submitted by Mr Meagher, the terms of the lease are such that it would be a breach of the lease for Colly to transfer water allocations for use on other land, if it was able to do so. 59 As submitted by Mr Hammerschlag, there is a sense in which Colly has, pursuant to clause 3.4 of the lease, paid for water which it has not used. Furthermore, clause 10.3 does indicate that Colly has the benefit of the water rights for the term of the lease. As at 22 September 1999, the water rights included the balance of the allocation remaining for the water year which was about to end, which could be drawn upon to its full extent, because there was a greater amount in the account in respect of each of the authorities. 60 However, in my opinion, that water allocation could, pursuant to the lease, only be used on the demised premises in the course of proper irrigation farming of cotton. 61 As noted earlier, any transfer of allocation would be given effect to by amendment of the authority: see sections 20AI(2), 20AK, and 20XA. Part 10 of the lease gives the lessee the use of the water rights for the term of the lease, but does not authorise the lessee to bring about the amendment of the conditions of those water rights: indeed, clauses 10(b) and 10(d) suggest strongly that the lessee, for its part, is not entitled to bring about a change in the conditions of the water rights. In my opinion, that is confirmed by clauses 5.1(e) and (f). What is plainly contemplated is that the water rights should be retained without alteration of conditions and then, at the termination of the lease, the lessor should have them back unaltered. 62 Accordingly, in my opinion, the lease does not give Colly a right to force the other holders of the authorities to join in a transfer, and it at least implies that there should be no alteration of the conditions of the authority; so that there is nothing in the lease which would overcome indirectly the necessity which I have found for all holders to join in a transfer pursuant to s20AH of the Water Act. 63 It is unnecessary for me to decide whether the authorities were part of the demised premises.

DAMAGES IF TRANSFER DENIED
Submissions

64   Mr Hammerschlag submitted that clauses 10.3(a) and (c) clearly represented and warranted that Colly was to have the benefit of the water allocations available during the term of the lease. That representation and warranty was breached. Had it been fulfilled, Colly would have been able to sell the allocations, and Mr Brown's evidence showed that, at the time of the breach, the allocations were worth around $650,000. Damages had to be assessed at the time of the breach: Johnson v Agnew (1980) AC 367; Ronnoc Finance v Spectrum Networks Systems Ltd (1997) 45 NSWLR 624. 65 Mr Meagher submitted that, on the true construction of the lease, the warranty was only that the allocations be available for use on the demised premises, in the course of proper irrigation farming of cotton. There was certainly no promise that the allocations could be transferred elsewhere, particularly in circumstances where such transfer was not authorised by the Water Act. Furthermore, in the absence of evidence as to what Colly would have done had the transfers gone ahead, and in circumstances where the allocations ceased to be saleable in about the middle of October 1999, the Court could not find that any damage had been suffered. Damages must be assessed in a manner fair to both parties: see Johnson v Perez (1988) 166 CLR 351 at 355, 367, 371. In any event, at most Colly could have transferred under the Moomin authority only what was left of its 19/20th share of the irrigation allocation.

Decision

66   I accept Mr Meagher's submission that, on the true construction of the lease, there was no representation or promise that the water rights could be used in any way other than on the demised premises, in the course of proper farming of cotton. Accordingly, it is unnecessary for me to consider whether damages would be assessed as submitted by Colly: in circumstances where the probability is that the allocations and increased account balances would have been retained for use by Colly under its other authorities, I am inclined to think that it would not have been correct simply to apply a market value, which existed only for about two or three weeks after the date of the attempted transfer.

RECOVERY OF ADDITIONAL RENT
Submissions

67   Mr Hammerschlag submitted that, although clause 3.4.2 of the lease used the word "received" in relation to the quantity of water which was to be the basis for the calculation of additional rent, it was clear from a reading of the whole of clauses 3.4 and 3.5 that additional rent was payable in respect of the quantity of water available or permitted, rather than what was actually received. On the basis that Colly was unable to transfer the 21,345 megalitres of water, this was water which Colly had paid for through the additional rent for the 1998/1999 lease year, and in respect of which there was a total failure of consideration. 68   Mr Meagher agreed with Mr Hammerschlag on the construction of clause 3.4.2; and he submitted that the consideration for the payment of the additional rent was the availability of the water during the lease year. On that approach, there had been no failure of consideration.

Decision

69   In my opinion, the consideration for the payment of additional rent was the availability of water, not its acquisition or use. Accordingly, in my opinion there was no failure of consideration, and therefore no entitlement to recover the additional rent.

RECOVERY OF 1999 TO 2000 RENT
Submissions

70   Mr Hammerschlag submitted that clause 3.3 of the lease made it clear that the rent was an annual rent, on the basis that 5,300 developed green hectares would be available for the lessee's permitted use throughout the term of the lease. The periodic nature of the payment was confirmed by clause 11.1(b), which provided that where the lessee was in default, the lessor could elect to convert the unexpired portion of the lease into a tenancy from month to month, to which the provisions of clause 12.5 would apply; and clause 12.5, relating to holding over, provided for a monthly tenancy at a rent equal to one-twelfth of the annual rent in respect of the previous lease year. (I note that clause 12.5 refers to "an Annual Rent equal to one-twelfth of the aggregate of the Annual Rent payable by the Lessee for the last Lease Year of the immediately preceding Term"; but "Annual Rent" where it first appears, is plainly falsa demonstratio for monthly rent.) There would be an absurd result if the lease was interpreted in any other way than that, in the event that $1.5 million had been paid at the beginning of a lease year and the lease terminated without fault of the lessee before the expiration of six months of the term, the amount of the $1.5 million referable to the unexpired portion of that six months were not refundable. An absurd interpretation should not be adopted: see Westpac Banking Corporation v Tanzone Pty Ltd, (2000) NSWCA 25. See also Smith v The Mayor, Aldermen & Burgesses of Birmingham (1883) 11 QBD 195. 71   Alternatively, Mr Hammerschlag submitted, a term should be implied to the effect that, when rent is paid in advance, and the lease is terminated without fault by the lessee, there should be refunded to the lessee so much of the pre-paid rent as was referable to any period after the termination of the lease. The conditions necessary to imply a term, as set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, were satisfied. See also Ling v Commonwealth (1994) 51 FCR 88 at 97ff. 72 In any event, Mr Hammerschlag submitted, s144 would apply. He referred me to authority apparently to the contrary, namely Ellis v Rowbotham (1900) 1 QB 740; In re Aspinall (1961) Ch 526; and Amad v Grant (1947) 74 CLR 327 at 338, 346. However, he also referred me to the expression of opinion in Mason & Carter Restitution Law in Australia, paragraph 1147, that it was very difficult to maintain that a legislative provision in the terms of s144 was not intended to apply for the benefit of lessees who had paid rent in advance. It does apply in favour of a landlord in respect of rent payable in arrears. It was a plain injustice if it did not apply the other way. If s144 did not in terms apply, nevertheless the Court should adopt the policy underlying that section: see Carmody v Delehunt (1984) 1 NSWLR 667 at 669. 73 Finally, Mr Hammerschlag submitted that some or all of the $1.5 million was recoverable on the basis of unjust enrichment. He referred me to David Securities Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 particularly at 382-3. He submitted that there was in this case a total failure of consideration: the lease was for the purposes of planting and harvesting cotton, and in respect of the 1999/2000 year that consideration totally failed. He also referred to paragraph 1215 and following of Mason & Carter. 74 Mr Meagher submitted that there was no provision in the lease which expressly or impliedly required repayment of any part of the $1.5 million, in the event of early termination of the lease. As regards the implication of a term, the lease was effective in business terms without the implication of any term: there was no requirement from business efficacy for the implication of a term. In fact, the term sought to be implied was inconsistent with the express terms of clause 3.1, requiring payment of $1.5 million "without any deduction". Further, there was no logic in breaking the lease here into daily units since plainly the days were not of equal value. In fact, no payment of rent related to anything other than the whole year. 75 Mr Meagher submitted that s144 had no application. Where the contract between the parties treated rent as having accrued and being payable in advance, there was no room for application of a provision to the effect that rents be considered as accruing from day to day: that was established by Ellis v Rowbotham. He also referred me to William Hill (Football) Ltd. v. Willen Key & Hardward Ltd. (1964) 108 Solicitors Journal 482, Canas Pty. Co. Ltd. v. K.L. Television Ltd. (1970) 2 QB 433 at 442, and In re a Debtor No.13A-10-1995) (1995) 1 WLR 1127 at 1132. 76 Mr Meagher submitted that the claim for restitution could not succeed. The contract between the parties dealt with recovery, by providing that there was no recovery; so that there was no room for a claim in restitution: see Horton v Jones (1939) 39 SR (NSW) 305 at 319. Further there was no total failure of consideration: see Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 375, Wincup v Hughes (1871) LR 6 CP 78. In fact, the benefit bargained for was the right for possession so long as the term continued, subject to the provisions of the lease including that for early termination. On that approach Colly received the whole of what it bargained for. Plainly, it received at least part of what it bargained for: in addition to possession of the fields on which cotton was planted, Colly had the benefit of clause 12.13.1, enabling it to plant crops and get the benefit of them; clause 14.1.2, entitling it to the use of dwellings; and also the benefit of a sharefarming agreement with interests associated with the plaintiffs, in respect of those parts of the demised premises not used for cotton.

Decision

77 Despite the view expressed by Mason & Carter, I believe I am bound by authority to hold that s144 of the Conveyancing Act has no direct application to this case. I consider I am bound by Ellis v Rowbotham, and cases following and approving it, to hold that where the lease provides for rent payable in advance, that rent is to be treated as having accrued in full and being payable in full at the date payment is required; so that there is no room for application of a provision providing for rent to be considered as accruing from day to day. However, in my opinion the general approach and policy underlying s144 can be adopted as one factor relevant to whether some kind of apportionment should be given effect to, without applying the statute itself: see Carmody v Delehunt at 669 to 670. 78   Furthermore, there are indications in the lease itself that rent is to be considered as applicable to periods less than a whole year. For example, if the lessor elected pursuant to clause 11.1(b) to convert the lease into a tenancy from month to month, with a monthly rent payable for each month, and if this happened shortly after $1.5 million rent had been paid in advance, it would indeed be absurd if the lessor could simply retain the whole of that $1.5 million. Similarly, clauses 12.13.2 and 12.18 contemplate that rent is applicable to periods of less than one year. 79   I do not read the lease as expressing an intention that the consideration of $1.5 million payable by the lessee at the beginning of each lease year is paid for a bundle of rights, which includes the possibility of early termination without fault of the lessee, pursuant to clause 20.2. In my opinion, the intention as disclosed by the lease is that $3-million is payable for each year's possession of the demised premises, that $1.5 million paid in advance is paid in respect of one-half of one year's occupation, that is for 182½ days or, where as in this case there is a Leap Year, 183 days, and that the consideration to be received by the lessee is severable by reference to the period of occupation; so that there was a total failure of consideration at least in relation to 83 days out of the 183 days in respect of which the $1.5 million was paid. I do not think such an interpretation of this lease is inconsistent with Ellis v. Rowbotham and the other cases referred to, which did not address questions of severability of consideration under the particular leases being dealt with and consequent failure of consideration. On that basis, Colly is entitled to recover $680,327.80 as money paid under a contract discharged without breach, in respect of which there has been a total failure of consideration. There is no defence of change of position raised. 80   If I were wrong in my finding of total failure of consideration, in my opinion a term having the same effect would be implied in this lease. The term I would imply is a term having the effect that, if in any year a first instalment of rent of $1.5 million is paid, and the lease is subsequently terminated before one-half of that year has elapsed, without fault of the lessee, then there should be refunded to the lessee a sum of money which bears the same proportion to $1.5 million as the number of days between the termination of the lease and the expiry of one-half of the year, bears to one-half of the year. Such a term is plainly reasonable and equitable. In my opinion it would be necessary give business efficacy to the contract, and so obvious that it goes without saying. It is capable of clear expression, and it does not contradict any express term of the lease. In particular, the term requiring payment without deduction is not inconsistent with a term requiring a refund in specified circumstances. 81   In my opinion, Ellis v. Rowbotham does not require a different result. Although I have held that this case is authoritative as to the interpretation of s.144, in my opinion it is not conclusive against recovery of a proportionate part of the rent in this case. It is distinguishable, at least on the ground that the termination of the lease in Ellis v. Rowbotham was for breach by the lessee. Further, the law on penalty and forfeiture has developed significantly since that case was decided; and it may well be that now a provision in a lease purporting to entitle a lessor to retain the whole of rent paid in advance for a substantial period, where the lease is terminated for breach of the lessee, is in substance a penalty, so that the lessor would be entitled only to so much as represented its actual damages for breach: see O'Dea v. Allstates Leasing System (WA) Pty. Ltd. (1983) 152 CLR 359. 82 It remains to consider whether Colly has any rights based upon more general grounds of unjust enrichment. There are, in the further amended cross-claim, claims for something over $2 million in respect of the preparations made for the planting of cotton on the demised premises, as improvements under the Agricultural Tenancies Act 1990; and for something over $500,000 in respect of water in storage on the properties, as being tenant's products under the Agricultural Tenancies Act. In my opinion it is not possible to assess a general claim for unjust enrichment without at the same time dealing with those claims. 83 The final matter I should mention is that a claim was put forward that there was a total failure of consideration in respect of the whole of the $1.5 million paid. That was put on the basis that the substance of what was bargained for in respect of each year of the tenancy was the right, or at least the chance, to have the benefit of a cotton harvest obtained in about May of each year. As shown by cases such as Rowland v Divall (1923) 2 KB 500 and Rover International Ltd v Cannon Film Ltd (1989) 1 WLR 912, the circumstance that a contracting party has received some benefit as a result of a contract does not preclude there being a total failure of consideration, where the party has not received any part of that which he contracted to receive. In this case, it is put that what in substance Colly contracted to receive was the opportunity to have a cotton harvest in May of each year. In my opinion, I cannot find in favour of Colly on this basis, at least in the absence of a more general consideration of unjust enrichment, which would involve consideration of the Agricultural Tenancies Act claim. I do not have any evidence as to the value to Colly of the dwellings which were included in the lease, or of the value to Colly of the benefit of the sharefarming agreement. Furthermore, if Colly gets some substantial benefit for the work which it did on the demised premises in the months leading up to the termination, through compensation under the Agricultural Tenancies Act, that too would be relevant to whether there was a total failure of consideration relating to the whole of the period for which the $1.5 million was paid. I do not think it would be appropriate now to reject outright this claim of unjust enrichment, because, in my opinion, the exclusion by agreement of the parties from the hearing of the Agricultural Tenancies Act claim simply made it impossible for that claim to be properly considered. In my opinion, it should be considered along with the Agricultural Tenancies Act claim.

CONCLUSION

84 For those reasons, in my opinion the plaintiffs should be given relief which would ensure that there is no transfer of any water allocations from the demised premises. Colly should be given the relief of recovery of a little over $680,000, plus I believe interest on that amount as from the termination of the lease. The consideration of the Agricultural Tenancies Act claim, and any more general claim based on unjust enrichment, would be for another day.

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Last Modified: 09/25/2000