Stuart Henry Masters v NSW Trustee and Guardian as trustee for Genniece Merlene Gorey

[2018] NSWSC 1670

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:	Stuart Henry Masters & Anor v NSW Trustee & Guardian as trustee for Genniece Merlene Gorey [2018] NSWSC 1670
Hearing dates:	18 & 19 September 2018
Decision date:	02 November 2018
Jurisdiction:	Equity
Before:	Rees J
Decision:	Shares in Murrumbidgee Irrigation Ltd and associated water rights form part of testamentary trust. Shares to be transferred to the trustees.
Catchwords:	SUCCESSION — Wills, probate and administration — Construction and effect of testamentary dispositions — Statutory water rights — Change of statutory scheme between date of Will and date of death — Where farming land and related items left to testamentary trust for grandsons — Where residue left to daughters — Whether water rights and associated shares form part of testamentary trust. ENERGY AND RESOURCES — Water — Water management — Development water rights in NSW — — Irrigation water rights — Irrigation Act 1912 — Irrigation Corporations Act 1994 — Murrumbidgee Irrigation Area — Construction of Constitution and Member Contract of Murrumbidgee Irrigation Ltd — Transmission of water rights governed by Constitution and Member Contract.
Legislation Cited:	Barren Jack Dam and Murrumbidgee Canals Construction Act 1906 Corporations Act 2001 (Cth) Corporations (Amendment) Act 1998 Evidence Act 1995, s 143 Irrigation Act 1912 Irrigation Corporations Act 1994 Irrigation Corporations (Amendment) Act 1998 Murrumbidgee Irrigation Act 1910 National Water Commission Act 2004 (Cth) NSW Trustee and Guardian Act 2009 Succession Act 2006 Trustee Act 1925, s 70 Water Act 1912 Water Management Act 2000 Water Rights Act 1896 Water Rights Act 1902 Wills, Probate and Administration Act 1898, s 21, s 29A
Cases Cited:	Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439 Hanson v The Grassy Gully Gold Mining Co. (1900) 21 NSWR 271 ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51 Martin v Martin [2010] NSWSC 700 Puntoriero v Water Administration Ministerial Corporation (1999) 199 CLR 575 Thorpes Ltd v Grant Pastoral Co Pty Ltd (1955) 92 CLR 317 Walsh v Walsh [2011] NSWSC 271
Texts Cited:	J D Heydon and M J Leeming, 2016, Jacobs’ Law of Trusts in Australia, 8th edn, LexisNexis Butterworths
Category:	Principal judgment
Parties:	Stuart Henry Masters - First Plaintiff John Baikie Wanklyn - Second Plaintiff NSW Trustee & Guardian - Defendant
Representation:	Counsel: D. Liebhold - Plaintiff K. Burke - Defendant   Solicitors: Walsh & Blair Lawyers - First & Second Plaintiffs Shaw McDonald - Defendant
File Number(s):	2017/305858
Publication restriction:	No

Judgment

1. In 1969, Greta Jean Gorey made a Will leaving any farming lands within the Murrumbidgee Irrigation Area on trust for her two grandsons. When Greta died 37 years later in 2006, she owned Irrigation Farm Purchase No. 1695 in Yanco No. 1 Irrigation Area of the Murrumbidgee Irrigation Area (the Farm) near Leeton, New South Wales and shares in Murrumbidgee Irrigation Ltd with associated water rights. Today, the shares and associated water rights are more valuable than the Farm. This case concerns:

1. whether replacement trustees should be appointed to the testamentary trust;

2. whether, by operation of law or the Constitution of Murrumbidgee Irrigation Ltd at the time of Greta’s death, the shares and associated water rights form part of the testamentary trust;

3. if not, whether on the proper construction of Greta’s Will the water rights are included in the testamentary trust; and

4. if not, should Greta’s Will be rectified to include the water rights in the testamentary trust.

2. In the result, I have concluded that the answers to these questions are, essentially, yes. However, this case illustrates that, in a time of rapidly changing and complex laws in respect of water rights, it is important that farmers review their Wills regularly to ensure that water rights are dealt with clearly and having regard to the laws in force from time to time.

3. In this judgment, I have referred to members of the Gorey family by their Christian name, without intending any disrespect in doing so.

The beginning of water rights in NSW and the Farm

4. The Court was asked to consider the development of water rights in New South Wales over an expansive period. What can be seen from what follows is that both the Farm and the water rights were effectively creatures of statute. The Farm came into existence as a result of a statutory scheme to open up the inland areas of New South Wales for agriculture by the provision of a reliable and adequate water supply. The water rights were created by the same statutory scheme but substantially modified over time and, in the 1990s, privatised and replaced by contracts between a state owned corporation, Murrumbidgee Irrigation Ltd and its members including Greta.

5. Aside from indigenous laws in respect of water, the colony began with common law riparian rights inherited from England. Riparian rights were concisely explained by Fullagar J in Thorpes Ltd v Grant Pastoral Co Pty Ltd (1955) 92 CLR 317 at 329:

The rights of an owner of land in respect of the water of a river flowing past his land are generally referred to as his “riparian rights”. They are rights of a special character, which he has by virtue of his ownership of land abutting on a river – his “riparian” ownership.

6. Common law rights were not particularly suitable to the drier climate of the colony and led to multiple lawsuits and the Water Rights Act 1896. As Stephen J explained the need for legislation in Hanson v The Grassy Gully Gold Mining Co. (1900) 21 NSWR 271 at 275:

It cannot be denied that for years and years past the question of the rights of riparian owners in this country, where the conditions are so totally different from the condition of things in England, has been a source of almost insuperable difficulty. There has been a great deal of expensive litigation, and I suppose, for that reason, the legislature passed this Act, in order to prevent riparian owners above and below from bringing actions against one another. If this Act does not aim to take the old common law rights from riparian owners and vest them in the Crown, then I do not know what it was passed for nor what it means. It was passed in the public interest to prevent litigation and to determine rights which up to the time of the passing of the Act it was almost impossible for the best lawyers to determine.

7. Or as Kirby J put it a century later in Puntoriero v Water Administration Ministerial Corporation (1999) 199 CLR 575 at [44]:

Notoriously, beyond the temperate coastline and semi-arid range lands, Australia is an extremely dry continent. This necessitates imperatives of water resource management and water conservation so as to make the most of the relatively few large river systems traversing areas of low and intermittent rainfall. This is why, from colonial times, the system of private riparian rights, which had been developed by the common law of England, was viewed as “inadequate when it came to regulating the increasing water needs of a developing and expanding rural economy in the vast, relatively dry expanses of [the] inland”.

8. The Water Rights Act 1896 was concerned with surface water. The Parliament reserved the “right to the use and flow and to the control of the water in all rivers …” to the Crown (s 1). The Minister granted water licences, for a fee, to use “works” such as dams, channels, pipes and machinery “for the purpose of water conservation, irrigation, water supply or drainage” (ss 5, 7, 9 and 22). The Act thereby vested in the Crown the common law rights of riparian owners, and reflected the common law notion that water was common property not especially amenable to private ownership and best vested in a sovereign state: ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51 at [54]-[55], [116]. As Fullagar J explained in Thorpes Ltd v Grant Pastoral Co Pty Ltd at 331:

… the real object of the Water Rights Act 1896 … was to enable the Crown, in a country in which water is a comparatively scare and important commodity, to exercise full dominion over the water of rivers and lakes and to undertake generally the conservation and distribution of water.

9. The Water Rights Act 1896 was replaced by the Water Rights Act 1902 and, later, the Water Act 1912. As Bryson J observed in Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439 at page 5:

In New South Wales the scheme of statutory regulation of the use of water is elaborate. The law regulates the use of water with much more elaboration than the common law did.

10. The interest of lawmakers then turned to irrigation, which was seen as necessary for future development: ICM Agriculture at [118]. By the Barren Jack Dam and Murrumbidgee Canals Construction Act 1906, the Parliament authorised the construction of a dam across the Murrumbidgee River at Barren Jack together with a weir and a system of canals and channels. In 1910, the Murrumbidgee Irrigation Act 1910 empowered the Governor to purchase and resume land or appropriate Crown land to enable construction of the dam and canals together with roads, railways and associated improvements to construct and manage irrigation areas and supply water. The scheme was explained in Puntoriero v Water Administration Ministerial Corporation at [8] per Gleeson CJ and Gummow J, quoting Mason P in the Court of Appeal:

Water flowing down the Murrumbidgee river is diverted at the Berembed Weir into the main canal which runs for 155 km through the Murrumbidgee Irrigation Area. There are 2,350 km of channels which convey the water from the Main Canal to farm boundaries. With minor exceptions, water flows to each farm boundary by gravitation. Flows and levels are controlled by regulating structures allowing water to be supplied to each farm and measured through Dethridge outlets. Each outlet is fitted with a Dethridge wheel with a simple revolution counter attached. The wheel passes a known quantity of water as it revolves and the amount of water delivered to each farm can be readily calculated. Water distribution is controlled by channel attendants or bailiffs who receive farmers’ orders for water. The attendants or bailiffs then schedule deliveries and adjust flows in the various channels according to demand.

The rates of diversion from Berembed Weir (and the release upstream from Burrinjuck and Blowering Reservoirs) are arranged to provide the irrigators’ anticipated requirements with a minimum of waste. This is a complicated task, as water must be ordered for release from the headwater storages about seven days in advance of being required on the farms.

11. In 1912, the Murrumbidgee Irrigation Act 1910 was replaced by the Irrigation Act 1912 which provided for the constitution, administration and management of irrigation areas. Section 6 provided:

The Governor may, by proclamation published in the Gazette, constitute any specified area of land of the Crown as an irrigation area …

12. One such irrigation area proclaimed was Yanco No. 1, in which the Farm is located. Section 7 provided (emphasis added):

Every proclamation constituting an irrigation area shall:

(a)   specify the boundaries of the area, and, if the area be divided into districts, the boundaries of such districts;

(b)   assign a name to the area, and a name or a number to each district;

(c)   state the number of such water rights per acre which are a fixed charge on lands in the area or, if the area be divided into districts, in each such district;

(d)   fix the price for each such water right …

13. Section 12 of Irrigation Act1912 provided:

(1)   The Commissioner shall each year allot to the occupier of any land within an irrigation area the number of water-rights which, in pursuance of the proclamation constituting the area, or any proclamation amending the same, are a fixed charge on such land.

(2)   The Commissioner shall, at the time and in the quantities fixed by him, supply water in pursuance of the water-rights so allotted –

(a)   to the boundary of any land held by any one person bona fide in his own interest; and

(b)   to such other points as may be agreed upon.

(3)   The charges in respect of such water-rights at the price fixed by such proclamation shall commence to be payable from the date of notification by the Commissioner to the occupier that water is available, and shall be paid by the occupier whether the water is or is not taken by him, unless he proves that the water was not available.”

Where (section 3),

“Water right” means right to such a quantity annually of water 12 inches deep as would cover an area of one acre.

In metric, therefore, one water right was about 1.2 megalitres of water.

14. “Fixed charge” was not defined in the Act, nor has it been judicially considered, but appears to have been used in the sense that the occupier of the land was entitled to receive, and was obliged to pay for, a set amount for the water applicable to that land, whether that volume of water was used or not. The Act provided that the amount due for the charge for water “shall be a charge upon the land and may be recovered from and shall bind the occupier of the land for the time being” (s 15(3)). If the charge was unpaid for four years or if the holding was abandoned, the Commissioner was entitled to take possession of the land, which would thereupon revert to the Crown (s 16). The Commissioner was not obliged to supply water if, by reason of drought, accident or other cause, it was impracticable to do so: s 23.

15. Government Gazettal notices were issued in respect of the Farm. Although the Gazettal Notices were not in evidence, the Court may inform itself about the notices: Evidence Act 1995, s 143. On 26 July 1929, the Minister for Agriculture declared that lands in the District of Yanco were available for disposal by way of purchase in fee simple as Irrigation Farm Purchases, including the Farm for the price of £3,910. The Farm was described as suitable for mixed farming and comprising 690 acres of which 16 acres was too high for irrigation by gravitation and 20 acres was liable to flooding or too low to be drained. Importantly, the gazette specified that the number of water rights which were a fixed charge on the Farm was 100 water rights. The price for the water rights was fixed at £37 10s per annum. This was about 120 megalitres of water.

16. In 1935, the Farm was purchased by Alexander McDowell. In 1941, Finlay Gorey purchased the Farm by taking over Mr McDowell’s indebtedness with the Rural Bank of New South Wales. Later in 1941, and again in 1967, portions of the Farm were surrendered but, notwithstanding this, the Farm retained 100 water rights for a fixed charge of 5 shillings per water right per annum.

17. In 1966, section 4B was inserted in the Water Act1912 (which, as mentioned earlier, had replaced the Water Rights Act 1896). The amendment concerned groundwater. Section 4B vested the right to use sub-surface water in the Crown, divesting any common law rights in such water and using language consonant with a recognition that water is a common resource: ICM Agriculture at [72]-[73].

18. By 1969, when Greta made her Will, the Irrigation Act 1912 had also changed somewhat. Section 7(1) now provided (differences to the Act as earlier set out in this judgment are italicized):

The Minister shall in every notification setting land apart for disposal as an irrigation farm purchase…

(a)   state the number of water rights which are attached to … the purchase or any part thereof; and

(b)   fix the prices for the water rights attached to the whole or to any part, or fix different prices for the water rights attached to different parts of any such … irrigation farm purchase;

(c)   specify the number of the said water rights which are to be a fixed charge … on the purchaser or any part thereof…”

19. Section 12 provided (differences to the Act as earlier set out in this judgment are italicized):

(1)   The Commission shall each year, at the times and in the quantities fixed by it, supply water in pursuance of the water rights which are attached to the land of any occupier—

(a)   to the boundary of any land held by any one person bona fide in his own interest; and

(b)   to such other point as may be agreed upon.

(2)   The charge in respect of such water rights as are a fixed charge on the land at the price fixed shall commence to be payable from the date of notification by the Commission to the occupier that water is available, and shall be paid by the occupier, whether the water is or is not taken by him, unless he proves that the water was not available…”

20. The phrase “attached to the land” was not defined, nor has it been judicially considered. It appears that, by this phrase, the Act distinguished between water rights which were a fixed charge on the land and “additional water rights” which were allotted to the occupier from time to time: see ss. 13(1), 15(3). Like earlier forms of the Act, “attached to the land” appears to have been used to refer to the water which the occupier of the land was entitled to receive, and was obliged to pay for, whether the water was used or not. The Act did not provide for the transfer of water rights attached to the land to anyone else. Rather, there are suggestions that the opposite was true. Section 7A provided that, when land was subdivided, the water rights were distributed between the subdivided lots. Section 7B provided that, when an irrigation farm lease converted to irrigation farm purchase, the water rights continued to apply to the irrigation farm purchase.

21. Overall the Water Act 1912 and the Irrigation Act 1912 provided statutory regimes which ran in parallel. Under the Water Act 1912, surface and sub-surface water vested in the Crown and licences were issued to use the water. The Irrigation Act 1912 applied specifically to irrigation areas, and conferred a right on the occupier of specific land to receive a precise amount of water for a fixed price. The water rights with which this Court is concerned are primarily governed by the Irrigation Act 1912 and its legislative successors.

The Gorey Family and Greta’s Will

22. In 1941, as mentioned, Finlay Gorey purchased the Farm. Finlay and his wife Greta Gorey were rice farmers and graziers. They had three children: a son, Alan Lionel Gorey, and two daughters, Greta Dawn Gorey (known as “Gretchen”) and Genniece Merlene Gorey. Alan Gorey married and had two sons: Stuart, the first plaintiff, who was born in 1968, and Sean. Gretchen and Genniece did not marry or have children.

23. In 1969, when Stuart was one year old, Alan Gorey died. On 26 June 1969, Finley and Greta Gorey made mutual wills, perhaps prompted by the death of their son Alan. By his Will, Finley left all his real and personal Estate to his wife Greta but, in the event that Greta did not survive him, appointed his daughters Gretchen and Genniece as executors and trustees. In that event, Finley left all his real and personal Estate on trust for his grandsons.

24. By her Will executed the same day, Greta appointed her husband Finley and her daughters Gretchen and Genniece as executors and trustees. Differently from the Will of her husband, Greta’s Will provided (emphasis added):

2.   I DEVISE all my estate and interests whether at law or in equity in any farming lands within the Murrumbidgee Irrigation Area of the said State together with the crops growing or harvested thereon and the livestock thereof and the machinery plant implements and tools on the said lands at the time of my death or usually thereon but temporarily removed for repair safe custody or otherwise and all seeds fertilisers and consumable stores of or on such lands to my Trustees UPON TRUST for my grandchildren…AND I EMPOWER my Trustees to manage and carry on my business as a Farmer and Grazier and for that purpose they may use and employ all or any part or parts of my estate as they shall think fit and shall be entitled to be indemnified and reimbursed therefrom in respect of any loss liability or expense suffered or incurred by them in the said management and for the purpose of so carrying on my said business shall be empowered to sell or mortgage the whole or any part or parts of the assets of my estate for the time being as they shall think fit or to retain the same or any part thereof unsold and shall have full discretionary powers as to increase or diminution of capital or stock and purchase of stock employment of servants sharefarmers and workmen and their salaries and other remuneration and the extent of personal superintendence to be exercised by them and generally to act in the management of my said businesses as if they were the absolute owners thereof.

3.   I GIVE DEVISE AND BEQUEATH all the rest and residue of my real and personal estate to such of my daughters as shall be living at my death and the issue per stirpes then living of any daughter who shall predecease me in equal shares.”

The italicised text in Clause 2 did not appear in Finley’s Will.

25. I do not know when Finley and Greta Gorey married, but it seems likely that Greta had lived on the Farm for many years before making her Will. As a farmer, it seems likely, given the importance of water to agriculture, that Greta would have been aware, at least generally, of the nature of water rights attaching to the Farm. Two things would have been apparent to Greta, I think. First, without water rights, the Farm would not have been land on which Greta and her husband could conduct their rice farming. The Farm, effectively, existed because of the Murrumbidgee Irrigation Scheme and the water supply which it provided to parts of New South Wales not otherwise blessed with rivers or adequate rainfall. Second, at that time, the water rights ascribed to the Farm by the Government were attached to the land and could not be transferred to anyone else. Although Greta might expect to receive additional water allocations from time to time if the season permitted, Greta could expect to receive the fixed water rights in any season unless drought had the result that the Farm’s water was proportionately reduced along with other farms in Yanco No 1 Irrigation Area.

26. At the time of making her Will, Greta did not own the Farm. The fact that Greta included a detailed description in her Will of any farming lands within the Murrumbidgee Irrigation Area and associated crops, livestock, machinery and consumables is consistent with Greta, unlike Finley, wishing to divide her Estate into any farm and related assets, to be inherited by her grandsons, and non-farm assets to be inherited by her daughters. It also indicates that Greta intended to leave, with any farm, everything that was needed to operate the farm. Water rights were a key ingredient in the operation of a farm within the Murrumbidgee Irrigation Area: no water, no farm.

The grandsons move away

27. Alan Gorey’s widow, the mother of Stuart and Sean, remarried and went to live on a farm at Holbrook with Stuart, Sean and her husband. Stuart and Sean took on the surname of their stepfather, Masters, but continued to have regular contact with the Gorey family. Finley, Greta, Gretchen and Genniece spent Christmas at the Masters’ farm in Holbrook, and Stuart and Sean stayed with the Gorey family in Leeton and visited the Gorey farms each year.

28. In 1972, Finley Gorey made a codicil to his Will, making the gift to his grandchildren conditional upon Stuart and Sean going by the surname Gorey. In 1983, Finley Gorey died, survived by his wife Greta. As such, Finley’s Estate, including the Farm, passed to Greta. In 1992, Greta leased the Farm to Graham, Edna and Steven Dufty for growing rice and grazing.

Privatisation of the Murrumbidgee Irrigation Scheme

29. In 1994, the Irrigation Corporations Act 1994 was enacted to reform management of irrigation systems, and to enable irrigation areas to be owned and managed by irrigation corporations on behalf of members. In 1997, Murrumbidgee Irrigation Ltd, a State owned corporation, became an irrigation corporation in respect of Yanco No. 1 Irrigation Area. To complete the process of privatisation, the Government passed the Irrigation Corporations (Amendment) Act 1998, which enabled the proclamation, in 1999, of Murrumbidgee Irrigation Ltd as a class 2 irrigation corporation, that is, one owned by the irrigators themselves.

30. In February 1999, the founding members of Murrumbidgee Irrigation Ltd signed a Constitution. Annexure A to the Constitution was a Member Contract. Neither document is easy to understand.

The right to water

31. The core obligation under the Member Contract was that Murrumbidgee Irrigation Ltd would supply water. More precisely, under Clause 4.1 Murrumbidgee Irrigation Ltd was obliged to supply the “Member’s Annual Allocation and the Off-Allocation Supply (if any)”. The Member’s Annual Allocation was the volume of water determined under Clause 5.1, which provided (emphasis added):

As soon as practicable after any Availability Announcement for the relevant Season, the Company must determine the volume of water (if any) available to the Member in respect of the Landholding for that Season.

32. “Availability Announcement” was the determination by the relevant Government Agency with respect to the percentage of water allocation available to Murrumbidgee Irrigation Ltd in any Season under the irrigation corporation licence for diversion from the Murrumbidgee River. Murrumbidgee Irrigation Ltd would supply to a Member the same percentage of the Member’s Base Allocation as the company was entitled to of its water allocation under its irrigation corporation licence: cl 5.3 to 5.4. “Member’s Base Allocation” meant the type and quantity (expressed in numbers of megalitres) of water allocation held by a member under their Member Contract (r 2.1(28)). The Member’s Base Allocation therefore determined how much water a member would receive in any given year, being the Member’s Annual Allocation. In any Season, Murrumbidgee Irrigation Ltd could increase or reduce the “Member’s Annual Allocation” as and when the water allocated to the company increased or decreased: cl 5.5 to 5.6.

33. It is important to note that Murrumbidgee Irrigation Ltd had to determine the water available to the Member “in respect of the Landholding” for the Season. Under the Constitution, a “Landholding” meant a parcel of land individually identified by a Landholding Reference Number in the Register and located within or adjacent to the Area of Operations (being the area served by Murrumbidgee Irrigation Ltd’s water supply and drainage works). Rule 140 obliged Murrumbidgee Irrigation Ltd to maintain a Register recording the classes and number of shares held by each member, the type and number of megalitres of each Member’s Base Allocation and each Landholding. The right to receive water depended upon having a Member’s Base Allocation, which was recorded in the Register with the corresponding member’s Landholding and shares. These things went together. The water was not allocated at large, but in respect of a specific portion of land, presumably having regard to the features of that land such as its size and use. In this case, the Landholding was the Farm.

34. The connection between the Landholding and the water allocation can also be seen from clause 19 of the Member Contract which provided that, if a Landholding was subdivided, the water would be reallocated between the subdivided land. The Member was obliged to enter into a new Member Contract with respect to each new Member’s Base Allocation arising from this process. Where subdivisions changed the land use to urban, rural residential or industrial, then Murrumbidgee Irrigation Ltd could refuse to determine a new Member’s Base Allocation in respect of one or more of the subdivided Landholdings, and any remaining Member’s Base Allocation not allocated would become Inactive Member’s Base Allocation. “Inactive Member’s Base Allocation” meant a Member’s Base Allocation that had no Landholding associated with it and which had been approved to be inactive. That is, if the Landholding no longer needed the water, it would be taken away

Who is a member?

35. The Constitution and Member’s Contract did not specify who was entitled to become a member, or how one became a member. Rather, Clause 1.1 of the Member Contract provided that the details of each Member, Landholding and “Member’s Base Allocation” were specified in a schedule issued to the member. As such, a member is a member by dint of the fact that they are specified as such in the schedule.

36. On 27 May 1999, a Member Contract Schedule was issued in respect of Greta and the Farm, noting:

Name of Member   Greta

Landholding      the Farm

Class and number of shares held (all are fully paid ordinary shares of $1 each)

B shares   B1 …         1,510

C shares   C6 …         2

Type and mega litres of base allocation

Type 1               1,510

Type 6               2

According to the Member Contract, Type 1 was normal security allocation for irrigation, and Type 6 was high security allocation for domestic use. There is no evidence before me which documents how the water rights attached to the Farm increased from 120 megalitres to 1,510 megalitres, nor how Greta became a member in the first place. Presumably, it was by reason of the water rights that were a fixed charge on the Farm under the previous statutory scheme, the Irrigation Act 1912.

37. The Constitution did define “Landholder” as (Rule 1(21)):

(a)   the registered proprietor or the person entitled to be registered as the proprietor of a Landholding;

(b)   a person who within the last three months was the registered proprietor or the person entitled to be registered as the proprietor of a Landholding; or

(c)   the lessee or mortgagee in possession of a Landholding.

38. But “Landholder” is only used twice in the Constitution. Rule 20.1(2) of the Constitution provides,

… if a member ceases to be a Landholder and the Member’s Base Allocation becomes an Inactive Member’s Base Allocation, the directors may execute a transfer of the relevant shares to the Company’s Nominee and the Company must register the transfer whether or not the … member … consents to the transfer.

Rule 111.2 refers to a member having one vote in respect of each Landholding “of which that member is the Landholder”. Working backwards, it would appear that a person satisfying the definition of “Landholder” may be entitled to be a member. The fact that the owner of a Landholding continued to be a Landholder for three months after they ceased to own the Landholding, under rule 1(21)(b), is curious and presumably intended to give the owner a period of time in which to deal with their shares in Murrumbidgee Irrigation Ltd after they ceased to own the land, failing which Murrumbidgee Irrigation Ltd would deal with the shares for them as explained below. Each type of Landholder was entitled, by one reason or another, to possession of the Landholding. The connection between a member and the right to possession of a Landholding is important.

Right to hold shares

39. Rule 7.1 of the Constitution provided:

Qualification to Hold Shares

… a member must hold a Member’s Base Allocation.

40. Rule 6 of the Constitution, entitled “Restriction on the Directors’ Right to Issue Shares”, provided that the directors may only issue A, B or C Class Shares on the following basis:

… B Class Shares: B Class Shares must be issued on the basis of one share per megalitre of Type 1 (Normal Security for Irrigation) … water allocation to which the member is entitled under their Member Contract, where the area of the Landholding is four hectares or more; and

C Class Shares: C Class Shares must be issued on the basis of one share per megalitre of Type … 6 (High Security for Home Garden) … water allocation … to which the member is entitled under their Member Contract …

41. As such, a member’s right to hold shares in Murrumbidgee Irrigation Ltd, and the company’s ability to issue shares to a member, depended upon the member having a Member’s Base Allocation under a Member Contract. If there was no Member’s Base Allocation, there was no right to be issued shares, nor power to issue shares.

42. The Constitution specifically limited the type of proprietary rights which the company would recognise in respect of the shares. Where two or more persons were registered as holders of any share, they were treated as joint tenants and, on the death of any one of the joint holders, the survivor was the only person recognised by Murrumbidgee Irrigation Ltd as having any title to the share: r 12. Murrumbidgee Irrigation Ltd was not bound to register more than three persons as the holder of a share: r 12(1). Murrumbidgee Irrigation Ltd was not bound to recognise a person as holding a share upon trust, nor any equitable, contingent, future or past interest in the share except an absolute right of ownership in the registered holder: r 15.

Right to transfer shares

43. Rule 16 of the Constitution provided:

Right to Transfer Shares

16.1 Subject to this Constitution, a member may not transfer any of the member’s shares except together with a Permanent Transfer of the Corresponding Member’s Base Allocation.

44. A “Permanent Transfer” was an absolute legal assignment of the whole or part of a Member’s Base Allocation and all of the rights that attached to that whole or part: Rule 2.1(31). The “Corresponding Member’s Base Allocation” meant the Member’s Base Allocation which corresponded in the Register maintained by Murrumbidgee Irrigation Ltd to shares: Rule 2.1(13), (32). As such, a member could not transfer their shares in Murrumbidgee Irrigation Ltd unless they also transferred their water entitlement under their Member Contract.

45. Clause 24 of the Member Contract provided Transfer Rules in respect of the transfer of a Member’s Base Allocation as follows (emphasis added):

Transfer and Variation of Base Allocation

24.1   The Company must determine rules governing:

(1)   the permanent transfer of the Member’s Base Allocation including transfers to other Members within the Area of Operations;

(2)   the creation of new Member’s Base Allocation by the permanent transfer of allocation into the Area of Operations;

(3)   arrangements for the permanent transfer of the Member’s Base Allocation out of the Area of Operations;

(4)   the temporary transfer of the Member’s Annual Allocation including transfers to other Members within the Area of Operations;

(5)   the creation of new Member’s Annual Allocation by the temporary transfer of allocation into the Area of Operations; and

(6)   arrangements for the temporary transfer of the Member’s Annual Allocation out of the Area of Operations.

…

24.4   The Member must transfer and/or vary the Member’s Base Allocation in accordance with the Transfer Rules.

24.5   In transferring the Member’s Base Allocation the Member must also deal with any Corresponding Shares in accordance with the Constitution.

46. The Transfer Rules were not in evidence. However, it would appear that, unlike water rights under the former Irrigation Act 1912, members could now transfer their water entitlements:

1. In respect of a Member’s Base Allocation, this could only be done on a permanent basis and in accordance with the Constitution, which effectively required that the member’s shares in the company also be transferred as only members holding a Member’s Base Allocation were qualified to hold shares. If the transfer of Member’s Base Allocation was outside the Area of Operations, the Corresponding Shares had to be transferred by the member to the company’s nominee: rr 16.1, 16.3.

2. For a Member’s Annual Allocation, the transfer could only be done temporarily, presumably because the annual allocation was determined each year after the Availability Announcement.

47. Further, cl 26 provided:

Making Member’s Base Allocation Inactive

26.1   In the event that a Member wishes to dispose of his or her Landholding but does not wish to dispose of the Member’s Base Allocation or a part of it, the Member must apply to the Company to retain the remainder as an Inactive Member’s Base Allocation.

…

26.3 If the Company gives its approval … the Member must transfer his or her Corresponding Shares to the Company’s Nominee in accordance with the Constitution.

26.4   For the period during which the remainder of the Member’s Base Allocation is Inactive Member’s Base Allocation, Charges continue to accrue, and the Member’s rights to enter into temporary and permanent transfers also continue in respect of the Inactive Member’s Base Allocation.

26.5   To reactivate Inactive Member’s Base Allocation, the person must apply to the Company for the transfer of the Corresponding Shares.

26.6 On application by the Member and subject to compliance by the Member with the Transfer Rules and the Constitution, the Company must reactivate an Inactive Member’s Base Allocation.

48. A member could now transfer their land without the water rights attached to the land, but in that event the Member’s shares had to be transferred to the company’s nominee and held on trust for the member: rr 20.1(2), 24.1(4). The member would still have to pay charges in respect of the water rights and could transfer the water rights in accordance with the Transfer Rules. So, Greta could have sold the Farm but applied to retain the Member’s Base Allocation as an Inactive Member’s Base Allocation and, on approval, transferred her shares to the company’s nominee and, using the Transfer Rules, permanently transferred the Member’s Base Allocation and her shares in Murrumbidgee Irrigation Ltd to someone else, or temporarily transferred her Member’s Annual Allocation whilst retaining her shares.

49. Apart from this, there is one other instance in the Constitution where a member’s shares could be sold. The directors could accept the surrender of a share by way of compromise of any question as to the holder being properly recognised in respect of the shares, in which case the person whose shares had been surrendered ceased to be a member and Murrumbidgee Irrigation Ltd could sell the shares: rr 10, 11. The purchaser’s entitlement to become a shareholder would still depend, in that event, on the requirement to hold a Member’s Base Allocation specified in r 7.1.

50. Finally, cl 37 provided that a Member could terminate a Member Contract but in that event (cl 37.2):

A notice of termination … is ineffective unless the Member:

(1)   transfers his or her Member’s Base Allocation in accordance with the Transfer Rules; and

(2) transfers or surrenders his or her Corresponding Shares in accordance with the Constitution.

51. It can be seen from the Constitution and Member Contract that the right to hold shares in Murrumbidgee Irrigation Ltd was inextricably linked with the entitlement to receive water, which was generally linked with being a Landholder. However, water entitlements could be separated from a Landholding in accordance with the Transfer Rules. There is no evidence that Greta, or anyone after Greta’s death, sought to transfer the Member’s Base Allocation or Member’s Annual Allocation under the Transfer Rules.

Transmission of shares

52. Rule 21 dealt with the transmission of shares in the event of the death of a member (emphasis added):

Transmission of Shares

21.1   This rule 21 is subject to the provisions of rule 23.

21.2   If a member dies, the legal personal representatives of the deceased are the only persons recognised by the Company as having any title to the deceased’s interest in the shares …

21.3   … a person becoming entitled to a share in consequence of … death … of a member may, upon giving the directors the information they reasonably require to establish the person’s entitlement, elect either to be registered himself or herself as holder of the share or to have some other person nominated by him or her registered as the transferee of the share.

21.4   If the person becoming entitled elects to be registered himself or herself, he or she must deliver to send to the Company a notice in writing signed by him or her stated that he or she so elects.

21.5   If the person elects to have another person registered, he or she must execute a transfer of the share to that other person.

21.6   All the limitations, restrictions and provisions of this Constitution relating to the right to transfer, and the registration of transfer of, shares are applicable to the notice or transfer as if death … of the member had not occurred and the notice or transfer were a transfer signed by that member.

53. It would appear to have been possible for a member to leave their shares in a Will, and for the beneficiary to apply for the shares to be transferred to them or their assignee. But the beneficiary or assignees would not be entitled to hold the share unless they otherwise met the requirements of the Constitution, that is, they held a Member’s Base Allocation: r 7.1. This is confirmed by r 23, to which r 21 was subject, which provided (emphasis added):

Linkage of Shares and Member’s Base Allocation on Transmission

23.1   Rule … 21 … only appl[ies] with respect of a person who, on the death … of a member, becomes entitled both to the member’s shares and the Corresponding Member’s Base Allocation.

23.2 If, as a consequence of the … death … of a member, a person became entitled to the Member’s Base Allocation but not to the Corresponding Shares, the Company must, on the application of that person and subject to that person being qualified under rule 7.1, cancel the Corresponding Shares and issue an equivalent number of the same class of shares to the applicant.

where “Corresponding Shares” meant the shares held in the name of the member that corresponded in the Register to the Member’s Base Allocation: Rule 2.1(14)(a). Where a person became entitled to the Member’s Base Allocation but not the shares in Murrumbidgee Irrigation Ltd, Rule 23.2 required Murrumbidgee Irrigation Ltd to issue the shares to that person, so that there was a perfect alignment between the right to receive water and the shareholder.

54. In 2001, the Irrigation Act 1912, most of the Water Act 1912, Irrigation Corporations Act 1994 and a host of related legislation were replaced by the Water Management Act 2000. Like its predecessors, the Act vested the right to surface and sub-surface water in the Crown, including all water conserved by any works that are under the control or management of the Minister (s 392). The Act again abolished the common law right to riparian landowners (s 393). Unlike licences issued under the Water Act 1912, access licences were now granted under Chapter 3 of the Water Management Act 2000. So far as irrigation corporations were concerned, Chapter 4 Part 1 of the Water Management Act 2000 now governed the position. So far as members of Murrumbidgee Irrigation Ltd were concerned, their rights continued to be governed by the Constitution and Member Contract.

Greta’s Estate

55. On 14 February 2006, Greta died, survived by her daughters Gretchen and Genniece and her grandsons Stuart and Sean. Probate was granted to Gretchen and Genniece. The inventory of property included the Farm, estimated to be worth $300,000, plant and machinery and:

Murrumbidgee Irrigation Ltd 1,510 shares Class B with corresponding water allocation of 1,510MI Type 1            $981,500.00

Murrumbidgee Irrigation Ltd 2 shares Class C with corresponding water allocation of 2MI Type 6               $2.00

The estimated value of the Class B Shares in Murrumbidgee Irrigation Ltd was more than three times the value of the Farm.

56. Title to the Farm was transmitted to Gretchen and Genniece and the Member Contract Schedule which had been issued to Greta on 27 May 1999 was cancelled. Another Member Contract Schedule was issued in the names of Gretchen and Genniece, noting that they held 1,510 B Class Shares, two C Class Shares and the corresponding megalitres of Base Allocation. There is no contemporaneous evidence as to whether Gretchen and Genniece became members in their capacity as executors, trustees of the testamentary trust or beneficiaries of the residual estate.

57. On 7 September 2006, a new constitution was promulgated for Murrumbidgee Irrigation Ltd. While the constitution was updated to take into account the new legislative framework under the Water Management Act 2000 and Corporations Act 2001 (Cth), substantive changes were few. In any case, the relevant constitution for the purposes of the issues before the Court is that of 10 February 1999.

58. In about January 2011, Gretchen and Genniece, as executors of Greta’s Estate, leased the Farm to Steven and Katrina Dufty for three years for $37,500 per annum (excluding GST) on the same terms as the 1992 lease to Graham, Edna and Steven Dufty. The lease ended on 31 December 2013, with no option for a further term. Steven and Katrina Dufty continued to occupy the Farm as tenants at will.

59. In November 2011, Murrumbidgee Irrigation Ltd changed its constitution again, and Member Contract Schedules were replaced with separate certificates for water entitlements, shares and delivery entitlements. The Water Entitlements Certificate recorded that Gretchen and Genniece had water entitlements of 1,510 Megalitres of Category 1 and 2 Megalitres of Category 6.

Gretchen’s Estate

60. In May 2014, Gretchen died, leaving her Estate to Genniece. The inventory of Gretchen’s Estate included the following real estate:

Farm 1695, 349 Brown Road Gogeldrie NSW, more particularly described as 73/751696 including 1510 MGL General Security Entitlement to Water with Murrumbidgee Irrigation and 2 MGL High Security (Type C6) Entitlement to Water with Murrumbidgee Irrigation, held jointly with Genniece Merline Gorey in their capacity as Executors of the Estate of the Late Greta Jean Gorey.

Estimated or known value      $2,116,500

The inventory of property was annexed to an affidavit sworn by Genniece. It is consistent with an understanding by Genniece that the water entitlements formed part of the testamentary trust established under Greta’s Will. It is also consistent with Gretchen and Genniece holding the shares in Murrumbidgee Irrigation Ltd after Greta’s death as executors of Greta’s estate. Indeed, as this is the only evidence on the subject, I find that Gretchen and Genniece applied for Greta’s shares to be transmitted to them as executors of her estate, and held the shares in that capacity.

61. The Farm was transmitted to Genniece, no doubt on the basis that she held the Farm on trust in her capacity as trustee of the testamentary trust established by her mother, Greta. In 2016, Genniece made an application to Murrumbidgee Irrigation Ltd for a replacement certificate following the death of joint member, Gretchen. This would be consistent with an application under Rule 12 of the Constitution: where two or more persons were registered as holders of any share, on the death of any of the joint holders, Murrumbidgee Irrigation Ltd would recognise the survivor as having title to the share by survivorship. In March 2016, Murrumbidgee Irrigation Ltd sent Genniece a Water Delivery Contract, Water Entitlements Contract, Water Entitlement Certificate, Share Certificate and Rights of Access Certificate. It may be, although evidence is scant, that Murrumbidgee Irrigation Ltd did not appreciate that Gretchen and Genniece held the shares as executors of Greta’s estate only.

Genniece loses capacity

62. In March 2016, a mental health clinician applied to the Guardianship Division of the New South Wales Civil and Administrative Tribunal for guardianship and financial management orders in respect of Genniece. In May 2016, the Tribunal determined that Genniece no longer had capacity to manage her affairs. The Tribunal noted in its decision:

The evidence indicates that Miss Gorey has become somewhat overwhelmed with her financial and legal affairs, which are both sizeable and complex. In particular, Miss Gorey is the executor of the estates of both her late sister and late mother. In addition, she continues to hold substantial land on behalf of one of the estates, which is currently being leased. Land is currently being leased to a tenant who has apparently not paid rent for a lengthy period of time. However, Miss Gorey has yet to authorise action to progress the recovery of that rental income. …

63. Genniece’s cousin, Michelle Gorey, was appointed as her guardian for twelve months. The Tribunal ordered:

1.   The Estate of Ms Genniece Gorey is subject to management under the NSW Trustee and Guardian Act 2009.

2.   The management of the Estate of Ms Genniece Gorey is committed to the NSW Trustee and Guardian.

64. In July 2016, the New South Wales Trustee and Guardian (NSWTG) wrote to the tenants re-directing rental payments to the trustee. NSWTG accepts that the rent from the Farm is trust property.

65. It was not until September 2016 that Stuart came to know that he was a beneficiary under Greta’s Will. He was contacted by solicitors who had acted on the probate of Greta’s Will, enquiring whether he might be a grandchild of Greta and thus a beneficiary of her Estate. It is a mystery lost in the sands of time as to why Gretchen and Genniece did not inform Stuart and Sean that they were beneficiaries under Greta’s Will. In 2017, Stuart notified NSWTG that he was preparing an application to be appointed as replacement trustee of the trust established by Greta’s Will, Genniece then being the sole remaining trustee and incapable of managing her affairs.

66. Inquiries have been made by Stuart and the NSWTG as to whether Genniece made a Will, but none has been found. As such, when Genniece passes away, her Estate will pass on intestacy to her nephews, Stuart and Sean. Consequently, the question whether the water rights attaching to the Farm form part of the testamentary trust, of which Stuart and Sean are the beneficiaries, or form part of the residuary Estate, is somewhat academic as Stuart and Sean will inherit Genniece’s Estate in due course in any event. It does have implications, however, for treatment of income and expenses in relation to the water rights as, if the water rights formed part of the residuary Estate and therefore passed to Gretchen and Genniece and, on Gretchen’s death, to Genniece as sole owner, then they were entitled to deal with the income as their own and the beneficiaries would not be entitled to an account in that regard.

67. In October 2017, Stuart and his uncle commenced these proceedings by Summons against NSWTG as tutor for Genniece. Shortly before the hearing, Stuart and his uncle proposed to amend the Summons to seek an account of the trust, in circumstances where Stuart and Sean had received no distributions from the trust since the death of Greta in 2006. Some concerns were expressed as to whether the trustee was in default. The plaintiffs expressed a concern during the hearing that Genniece or NSWTG may be unable to provide an account, and may not have kept separate accounts for Genniece, Genniece as executor of Gretchen’s Estate and, most importantly, Genniece as trustee of Greta’s Estate. These issues, having been raised shortly before the hearing, were unable to be dealt with at the hearing beyond granting leave to the plaintiffs to file a Further Amended Summons seeking orders for the taking of accounts and, at the conclusion of the hearing, making directions to ensure that this part of the plaintiffs’ claim is progressed for final determination as soon as possible.

Replacement of Trustee

68. Stuart and his uncle John Wanklyn seek to be appointed as the replacement trustees of the testamentary trust under s 70 of the Trustee Act 1925. Sean, unfortunately, suffers from schizophrenia and is apparently not capable to act as a trustee. I was told that Stuart has kept Sean informed of these proceedings. Section 70 provides:

(1)   The Court may make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

(2)   The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court. …

69. The NSWTG agreed that it was appropriate, in light of Genniece’s lack of competency or legal capacity, to appoint other trustees to the trust. NSWTG did not seek to be appointed trustees.

70. As Genniece, the only surviving trustee, is now incapable, it is appropriate to appoint new trustees. Stuart is an engineer and his uncle is a retired pharmacist. Both appeared to me to be well qualified to discharge the obligations of a trustee. I was informed during the hearing that the tenants of the Farm had declined to pay further rent until orders were made as to who the trustee was and so, during the course of the hearing, I made orders appointing Stuart and his uncle as trustees of Greta’s estate.

Did the testamentary trust include the water rights?

71. The plaintiffs contend that the water rights attaching to the Farm formed part of the testamentary trust under clause 2 of Greta’s Will because, in February 2006, the instruments which brought them into being had that effect. The plaintiffs seek a declaration that Greta’s interest in her shares in Murrumbidgee Irrigation Ltd have at all times since her death been held on trust for her grandsons.

72. The plaintiffs submit that, in 2006, Greta had rights to water allocations because she was a landowner, a shareholder in Murrumbidgee Irrigation Ltd and had contractual rights to allocations of water to her land. The water rights were potentially severable from the land, if Greta had elected to take the steps necessary to sever the rights. No such severance had been effected before death. There is no expression of a wish or direction in the Will that the Farm be left to the grandchildren without the Base Allocation. Therefore, the Member’s Base Allocation travelled with the land. While the shares could be transmitted to the legal personal representatives of the deceased, this was under a Constitution which made provision for cancellation and re-issue to the holder of the Member’s Base Allocation. The Member’s Base Allocation is not described in the Member’s Contract or Constitution as property that can be separately devised. The Constitution allows transmission of shares to an executor but the Member’s Base Allocation is linked to the land because there must be an express election to transfer land without a Member Base Allocation. Greta and Genniece did not take and retain the shares because they were residuary beneficiaries. They took as trustees of land which was devised to the plaintiffs and it was the land, because it had the benefit of Member Base Allocation, that qualified the trustees to hold the shares in Murrumbidgee Irrigation Ltd.

73. NSWTG submits that the shares and water entitlements do not form part of the trust property and pass to Gretchen and Genniece in equal shares, and subsequently passed to Genniece as the rest and residue of Gretchen’s Estate. NSWTG submits that the Member’s Base Allocation determines the water allocation under the Member Contract, and whilst the number of shares and the water allocation are linked, it is not apparent that the shares in Murrumbidgee Irrigation Ltd or the water allocation/entitlements provided for under the member’s base allocation or base allocation are “connected” with the land to the extent described in Elders Rural Finance. The requirement that the number of shares held in Murrumbidgee Irrigation Ltd is subject to the quantity of water allocation or water entitlements provides a strong basis to argue against any proposition or conclusion that the shares and water allocations/entitlements are “connected with the land”. NSWTG submits that the Constitution, Member Contract and Member Contract Schedule do not support the notion that the Member Contract links the ownership of the shares and water allocations to the Farm. Rather, the Constitution demonstrates the link as between the registered customer and the water entitlements allocated. NSWTG submitted that by analogy with water licence cases, to entitlement may be a species of property separate from the ownership of land.

74. Whether water rights form part of the land was considered by Bryson J in Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439 in the context of entitlements under the Water Act 1912. Whilst Bryson J noted that the existence of property rights in licences has to be considered afresh for each statutory scheme, his Honour considered that the rights created by the Water Act 1912 were not personal rights of the person to whom the licence or entitlement was issued but were incapable for alienation from the land and formed part of the bundle of rights constituting ownership of the land. Important in this conclusion was the inability to assign water rights under the Water Act 1912. At page 7:

The question which is presently important is whether the rights in s.17 are part of the bundle of property rights which constitute land ownership, or whether they are a different piece of property to land ownership. For many purposes licences or other entitlements under the Water Act 1912 should be treated in ways analogous to property or to legal rights. … However, when looking at the rights created by entitlements under the Water Act 1912, it appears to me that it is clear that they are not personal rights of the person to whom the licence or other entitlement is issued. …

To echo approximately the words of the Act at various places, the rights enure for the benefit of the lawful occupier of the land; the lawful occupier is deemed to be the holder of the entitlements. This appears to me to be required by the physical nature of the subject matters of land and water; water rights which enure for the benefit of the occupier of land cannot be assigned in any way in which they could be used by someone else and do not enure for the benefit of the lawful occupier of the land. The water rights granted under an entitlement in relation to land can no more be used or enjoyed elsewhere than a hole in the soil of the land can be dug elsewhere; it is a physical impossibility to use or enjoy them on the land except while in occupation.

To my mind the question how could the water rights be enjoyed if they were assigned separately to the right to occupation cannot receive an intelligible answer. They could be withheld by the new owner from the occupant, but that is not enjoying them or using them. The scheme of statutory regulation, the cornerstone of which is that the right to the use and flow of the waters is given to the Crown, does not do or purport to do anything which alters in legal effect the elementary reality that water rights touch and concern the land, they are bound up in land ownership and the control of the occupation of the land.

This is no less true or any differently true because the statute requires a licence or other entitlements to be obtained by some person; once that has been done, the water rights are available to the land. They can be ended, I suppose by surrendering the entitlement, and they can be created by obtaining one. While they exist however they exist as an aspect of occupation and the right of occupation is part of the control exercised by ownership.

75. His Honour’s analysis was adopted by White J in Martin v Martin [2010] NSWSC 700 at [14] as correct in respect of the Water Act 1912 as it stood at that time. The statutory regime examined by Bryson J closely resembled the water rights created under the Irrigation Act 1912, certainly at the time that Greta made her Will in 1969. The Irrigation Act 1912 described the water rights as “attached to the land”, and there was no ability to deal with the water rights apart from the land.

76. NSWTG submits that Elders Rural Finance Ltd may now be at odds with the High Court’s views in ICM Agriculture. In that case, the Court was concerned with changes in the legislative scheme concerned with an inter-governmental agreement which led to the enactment of the National Water Commission Act 2004 (Cth). The agreement required New South Wales to convert water licences granted under the Water Act 1912 to licences under the Water Management Act 2000 and to roughly halve water entitlements by 1 July 2016. Persons who held bore licences under the Water Act 1912 which had been replaced with aquifer access licences under the Water Management Act 2000 argued that this amounted to the acquisition of property otherwise than on just terms contrary to s 51(xxxi) of the Constitution. The majority of the Court disagreed on the basis that there were no common law rights in groundwater and the State had always had power to regulate extraction of this resource by licensing. Their Honours expansively reviewed common law riparian rights and the progressive abolition of those rights in New South Wales since 1896. The case does not, I think, change the task before this Court which is to carefully analyse the Constitution and Member Contract with a view to determining whether the water rights formed part of the Farm or were separate from the Farm having regard to those instruments.

75. A more recent example of the task undertaken by Bryson J is Martin v Martin, in which White J considered access licences under the Water Management Act2000. In that case, the deceased owned a farm known as “Narooma” near Wagga Wagga, which was a property of some 520 acres with river frontage used for grazing cattle and growing crops. In 2002, the deceased made a Will leaving the property to his son and the residue to his wife. At the time of making his Will, the deceased held licences issued under the Water Act 1912 in relation to “Narooma”. At that time, the water licences could not be transferred independently of the transfer of the land to which it related, as explained by Bryson J in Elders Rural Finance Ltd. However, by the time that the deceased died in 2008, the water licences issued under the Water Act had been replaced by an access licence under the Water Management Act. Access licences were fundamentally different to water licences and could be dealt with separately to the land. Notable features of access licences under the Water Management Act 2000 were:

1. Access licences could be transferred to any person, either permanently (s 71M) or temporarily, for a specified period (s 71N).

2. Access licences were capable of devolving by law (s 72).

3. Access licences were capable of being co-held, whether as joint tenants or tenants in common (ss 72-4).

4. Part of the rights (s 71Q), or a part of the water allocation (s 71T) under an access licence could be assigned to another licence-holder.

5. Subject to a ministerial scheme being in place, the allocation under an access licence could be assigned interstate to a corresponding scheme (s 71V).

6. A security interest could be created over an access licence (s 71D), and access licences could be sold or otherwise dealt with to enforce an obligation thereby secured (s 71X).

7. Access licences were to be recorded on an “Access Register”, along with dealings, caveats and security interests, along with a number of other details (ss 71, 71A).

Most of these dealings could take effect freely, although some kinds of dealings required the Minister’s consent.

78. His Honour concluded that the access licence was personal property which no longer had a necessary connection with the land and it was hard to say that the access licence was part of “Narooma”: at [43]. Whilst White J’s analysis was unquestionably correct, his Honour was considering different rights under a different legislative scheme. In the case before me, the water rights arise under the Constitution of Murrumbidgee Irrigation Ltd and the Member Contract. Neither Elders Rural Finance Ltd nor Martin v Martin applies without further analysis as each was referable to the specific statutory schemes which their Honours examined. The contractual regime in this case has similar features to the rights examined by Bryson J and White J, but other unique features as well. As Slattery J summarised the operation of the Constitution in Walsh v Walsh [2011] NSWSC 271 at [38] ff:

[38]   The MIL Constitution and the Member Contract with its members link the ownership of particular MIA farming land with the ownership of particular MIL shares and with the water allocations to that farming land. … The scheme is that only persons with landholdings in MIL's irrigation area can be Members with an active water allocation, called a “Member's Base Allocation” under the MIL Constitution entitling them to the supply of MIL irrigation water. As soon as a Member ceases to hold land in MIL's area of operations the Member must cease to be a Member or must take up an “Inactive Base Allocation”. MIL's Inactive Base Allocation system permits MIL itself to transfer the Member's MIL shares to it's own nominee if a member ceases to be a landholder in the MIA. This ensures that non-landholders cannot trade in Base Allocations through MIL. …

[41]    The possibility of separation of particular land and its water allocation is contemplated by clause 26 of the Member Contract to occur only in limited circumstances. …

79. In Walsh v Walsh, Slattery J was not required to review the Constitution and Member Contract in detail and specifically refrained from doing so: at [93]. Having now undertaken a detailed review of these documents, I consider that, in the ordinary course:

1. The right to receive an allocation of water from the Murrumbidgee Irrigation Scheme was linked to a Landholding.

2. The Landholding was linked to a Landholder, or Member, which was a person or entity entitled to occupation of the Landholding, either as a registered proprietor, lessee or mortgagee in possession.

3. The right to hold shares was dependent upon the right to receive an allocation of water.

4. The information to record these linkages were kept in the Register. As mentioned earlier, the Register recorded three key pieces of information: the classes and number of shares held by each member, the type and number of megalitres of each Member’s Base Allocation and each Landholding.

5. The links could be severed, but only in specific circumstances in accordance with the Transfer Rules, Constitution and Member Contract.

80. It seems to me that whether, by reason of the Constitution and Member Contract, the Member’s Base Allocation and shares formed part of the bundle of rights constituting ownership of a Landholding depended upon whether the Landholder had taken any steps under the Constitution, Member Contract and Transfer Rules, to separately deal with the Member’s Base Allocation apart from the Landholding. If the member had taken such steps, then Murrumbidgee Irrigation Ltd would recognise that separation and deal with the water rights separately. If the landowner had not taken such steps, then from the point of view of Murrumbidgee Irrigation Ltd, the Landholder of the Landholding was also entitled to the Member’s Base Allocation and the corresponding shares in the company. The default position was that the Landholding and water rights went together. This seems to me to be consistent with the general operation of the privatised Murrumbidgee Irrigation Scheme.

81. Under rule 21, the beneficiaries of Greta’s Will were entitled to apply to Murrumbidgee Irrigation Ltd for Greta’s shares to be transmitted to them. If the trustees of the testamentary trust had made such an application, or if the residuary beneficiaries had made such an application, then Murrumbidgee Irrigation Ltd would have had to be satisfied that the applicant was entitled to be registered as the shareholder. If Gretchen and Genniece had applied, as residual beneficiaries, to be entitled to the Member’s Base Allocation, what information could they have provided to Murrumbidgee Irrigation Ltd to establish their entitlement to the shares under rule 21.3? The only information was Greta’s Will, which made no mention of her shares in Murrumbidgee Irrigation Ltd or the Member’s Base Allocation. Greta’s Will did not provide information to satisfy Murrumbidgee Irrigation Ltd that Greta wished to leave her Member’s Base Allocation separately from the Landholding such that Gretchen and Genniece were entitled to be recorded as shareholders.

82. It seems to me that, in the absence of Greta taking any step to separate her water rights under the Transfer Rules, Murrumbidgee Irrigation Ltd would have acceded to the application of the trustees of the testamentary trust to be registered as shareholders but not that of the residuary beneficiaries. Having taken no steps to separate the Member’s Base Allocation from the Landholding, I conclude that the grandsons became entitled to the shares in Murrumbidgee Irrigation Ltd by operation of the Constitution and Member Contract.

Construction of Greta’s Will

83. It is not necessary for me to consider this part of the case, but in deference to the detailed submissions put to me, I will do so briefly. There is no evidence before me as to Greta’s instructions to prepare the Will, although the parties endeavoured to obtain such evidence. The solicitor who witnessed Greta’s execution of the Will passed away in 2015.

84. The plaintiffs submit that, because the deceased died in February 2006, the provisions of the (since repealed) Wills, Probate and Administration Act 1898 continue to apply in respect of the Will (clause 3(6) to Schedule 1 of the Succession Act 2006). Under section 21 of the Act, the Will “shall be construed with respect to the real and personal property comprised in it, to speak and take effect as if it had been made immediately before the death of the testator, unless a contrary intention appears by the will”. The general words used by the deceased are directed to future acquired property, she did not own the farm when she executed her Will and it may be accepted that the Will speaks, in relation to property at the date of death. NSWTG did not submit otherwise.

85. The plaintiffs submit that Greta’s Will is to be construed as devising the shares and water allocations in conjunction with the farm and seek a declaration that Greta intended that the gift of land in clause 2 of her Will would include the water rights connected with the Farm, or alternatively, a declaration that on its proper construction the gift of the Farm included the Member’s Base Allocation within the meaning of clause 2.1(28) of the Constitution of Murrumbidgee Irrigation Ltd dated 10 February 1999.

86. NSWTG submits there is no evidence as to what Greta intended to be denoted by the expression “all my Estate and interests whether at law or in equity in any farming lands within Murrumbidgee Irrigation Area”. Absent any such evidence, the natural meaning of the words do not import the inclusion of the shares and water entitlements to be connected with the land, in circumstances where as at 1969, water entitlements were separate from the land not appurtenant to it. I do not think NSWTG’s submission accurately reflects the operation of the Irrigation Act 1912 at the time when Greta made her Will.

87. NSWTG submits that the share in Murrumbidgee Irrigation Ltd and the associated water entitlements were not property that fell within the words “all my Estate and interests whether at law of in equity in any farming lands within Murrumbidgee Irrigation area” because the statutory scheme had vested the right to the use of and control of water in rivers and lakes and ground water in the State; the Farm was known and described as being within Yanco Irrigation No 1; Greta referred to the Farm as being within the Murrumbidgee irrigation area; at the time of making the Will, Greta was drawing water from Murrumbidgee Irrigation Ltd’s predecessor; and as such the use of and control of the water was with the State, determined annually by Murrumbidgee Irrigation Ltd’s predecessor; and, finally, the member contract issued to Greta in 1999 linked ownership of the shares and water entitlements to the “customer” or registered member of Murrumbidgee Irrigation Ltd’s predecessor. This submission focuses more on the scheme under the Water Act 1912 than the Irrigation Act 1912.

88. The approach which I should take is that of White J in Martin v Martin, where his Honour construed the Will in respect of Narooma. That Will provided:

I GIVE to my son ARTHUR ROSS MARTIN:

(a)    my rural property known as ‘Narooma’;

(b)    all livestock, farm plant and equipment in which I have an interest;

(c)   the proceeds of National Australia Bank account styled ‘A R Martin and Sons’ after payment of all my funeral and testamentary expenses and all death, probate and estate expenses payable in respect of my estate.

89. His Honour found that, at the time of making the Will, the deceased’s intention as expressed in the Will was that all assets connected with the property should pass to the plaintiff: at [42]. I think the same can be said about Greta’s intention when she made her Will in 1969 and I refer to what I have already said about Greta’s intentions at that time. But it is not Greta’s intention when she made her Will in 1969 that is critical. It is her intention in 2006, by which time the water rights connected with the Farm had changed enormously. The same difficulty occurred in Martin v Martin, where the water licences which existed when the deceased made his Will had changed fundamentally by the time of his death. His Honour considered, at [43]:

Nonetheless, the question is not simply whether the deceased would have intended the access licence to pass to the plaintiff had he known and been able to appreciate that a new species of property had come into existence after he made his will, which was connected with the property and would enhance its value. Rather the question is what the deceased intended by the words he used. If the position is considered at the time of the will, for the reasons I have given, the deceased is not to be taken to have intended then that his rights to the water licence would pass to the plaintiff under the will, because those rights, even if considered as an asset, were not transmissible by will but rather would attach to a gift of the property by force of statute. If considered at the date of the testator’s death, it is hard to say that the access licence was part of the property known as Narooma when it was personal property which no longer had a necessary connection with the land. 

It is not a legitimate process of construction to ask what the testator would have intended had he been able to turn his mind and had turned his mind to the question as to how the property which came into existence after the will was to be disposed of. Rather the question is (considering the matter at the time of the testator’s death) what he intended to be denoted by the expression in “my rural property known as ‘Narooma’”.

90. His Honour concluded that, as the access licence was not appurtenant to the land at the time of the deceased’s death, it did not pass under cl 3 of his Will. His Honour’s conclusion was inextricably linked with the nature of access licences under the Water Management Act 2000, which has been canvassed earlier in this judgment.

91. Applying the same principles to the case before me, I consider that the water rights linked to the Farm, and the resulting shares in Murrumbidgee Irrigation Ltd, were appurtenant to the Farm at the time of Greta’s death as she has not availed herself of the limited opportunities to separate the water rights from the Landholding under the Transfer Rules. As such, I consider that Greta’s intention at the time of her death was that her rights under the Member Contract, being to a Member’s Base Allocation and shares in Murrumbidgee Irrigation Ltd, would pass to her grandsons under her Will.

Rectification of the Will

92. In the alternative, the plaintiffs seek on order under section 29A(1) of the Wills, Probate and Administration Act 1898 to rectify Greta’s Will by inserting into clause 2 the italicised words:

I DEVISE all my estate and interest whether at law or in equity in any farming lands within the Murrumbidgee Irrigation Area of the said State together with all entitlements to water allocations in relation the said lands that I may have at the date of my death, the crops growing or harvested…

93. An application for rectification under section 29A(1) of the Wills, Probate and Administration Act 1898 must be brought within 18 months of the testator’s death, failing which the plaintiffs need leave to make such an application. The Court may grant leave to apply after 18 months if sufficient cause is shown for the failure to make the application within that period: s 29A(3). As Stuart was unaware until recently that he was a beneficiary under Greta’s Will, it is appropriate that such leave be granted and, NSW Trustee and Guardian do not suggest otherwise. Accordingly, I grant leave to the plaintiffs to make an application for rectification under section 29A(1) of the of the Wills, Probate and Administration Act 1898. However, in light of my earlier findings, it is not necessary to rectify Greta’s Will.

Relief

94. I have concluded that, by operation of the Constitution and Member Contract, the plaintiffs are entitled to be registered as shareholders of Greta’s shares in Murrumbidgee Irrigation Ltd which are presently registered in Genniece’s name. However, the register is kept by Murrumbidgee Irrigation Ltd, which is not a party to the proceedings. The company is affected by the relief I propose to grant and should be joined, albeit that the company may not wish to be heard. As the plaintiffs will hold the shares as testamentary trustees, the way in which this should occur will need to be canvassed with the company as it does not ordinarily recognise that shares are held on trust. No orders will be made until an amended summons joining the company has been served and it has had an opportunity to appear.

95. Subject to any submissions that may be made by the company, I consider that the plaintiffs are entitled to be issued by Murrumbidgee Irrigation Ltd with replacement certificates for those issued to Genniece on 4 March 2016, being Share Certificate SC002063 and the corresponding Water Delivery Contract, Water Entitlements Contract, Schedules, Water Entitlements Certificate and Rights of Access Certificate.

96. The relief sought in prayers 5, 9 and 10 of the Further Amended Summons is generally appropriate, but needs to be amended to reflect the fact that the plaintiffs are not identical to the beneficiaries of the testamentary trust. Stuart’s uncle has been appointed as a replacement trustee, but the beneficiaries of the trust are Stuart and Sean. Further, prayer 9 should be amended to reflect the fact that the result is by reference to the operation of the Constitution and Member Contract rather than the Will, albeit that I consider that the Will would have produced the same result. Finally, I am not prepared to make orders in respect of Sean’s interests unless I have proper evidence that he is aware of these proceedings and my proposed orders. Whilst I have been informed during the hearing that Sean has been kept informed of these proceedings, this needs to be formally established before I make any orders affecting Sean’s interests. I request the parties to prepare short minutes of order reflecting these matters, which I will make once I have heard from the company and Sean or his representative.

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Amendments

05 November 2018 - Para 74 - piece of property to land entered twice - deleted

Para 77 (a) - change "would" to "could"

Para 85 - change "Construction" to "Constitution"

para 96 - change "effecting" to "affecting"

Decision last updated: 05 November 2018