Walsh v Walsh
[2011] NSWSC 271
•07 April 2011
Supreme Court
New South Wales
Medium Neutral Citation: Walsh v Walsh [2011] NSWSC 271 Hearing dates: 19 August 2010, 2 September 2010 and 17 September 2010. Decision date: 07 April 2011 Before: Slattery J Decision: Plaintiff's claim for appointment of trustees for sale of shares in Murrumbidgee Irrigation Limited (MIL) pursuant to Conveyancing Act 1919 s 66G dismissed. Declaration that plaintiff/cross-defendant holds his interest in MIL shares on trust for defendant/cross-claimant. Order that plaintiff/cross-defendant transfer his interest in MIL shares to the defendant/cross-claimant.
Catchwords: ESTOPPEL - General principles - contract for sale of irrigated farm land in 2000 - whether interest in shares of irrigation supply company transferred with land - both parties treated interest in shares as transferred in 2000 at time of contract - defendant purchaser acted on assumption shares transferred in 2000 - HELD plaintiff vendor estopped from denying transfer of shares to purchaser. Legislation Cited: Conveyancing Act 1919 (NSW), s 66G
Irrigation Corporations Act (NSW) 1994
Water Act 2007 (Cth), s 97
Water Management Act (NSW) 2000Cases Cited: Austotel Pty Limited v Franklins Self Service Stores Pty Limited (1989) 16 NSWLR 582
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Commonwealth Bank of Australia v MacDonald (2000) 10 BPR 18,111
Daniels v Pynbland Pty Ltd (12 April 1985- unreported Supreme Court)
Dillwyn v Llewelyn (1862) 4 DeGF & J 517; 45 ER 1285
Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439
Giumelli v Giumelli (1999) 196 CLR 101
Heimann v Commonwealth of Australia (1938) SR (NSW) 691
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Ramsden v Dyson & Thornton (1866) LR1HL 129
The Moorcock (1889) 14 PD 64
Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387;Texts Cited: Fisher and Lightwood, Law of Mortgages, 10th ed, London, Butterworths 1988, pg 57 Category: Principal judgment Parties: Plaintiff: Graham Ernest Walsh
Defendant: Maurice Geoffrey WalshRepresentation: Counsel:
Plaintiff: Mr T Hall (Sol)
Defendant: G. Dempsey
Solicitors:
Plaintiff: Trevor Hall, Hall Partners
Defendant: Nick Wordsworth, Noyce, Salmon & D'Aquino
File Number(s): 09/291730
Judgment
HIS HONOUR : The Walsh family has farmed irrigated land in the Murrumbidgee Irrigation Area ("MIA") since the 1950s. Family members were involved together in farming partnerships until 2000. In that year it was decided to dissolve these partnerships. A transaction which was part of their scheme of dissolution is now the subject of disagreement between some family members. The family cannot resolve this disagreement and has asked the Court to intervene.
The Family Dispute
The dispute relates to a farm on Bridge Road Murrami ("the farm"). Pursuant to the Court's policy of reducing the risk of identity theft through the publication of personal information in judgments these reasons do not set out the precise address or title reference to the farm.
The plaintiff Graham Walsh and the defendant Maurice Walsh are brothers. They have three other siblings, two brothers Brian and Ian and a sister Kayleen. Graham is the youngest of the three brothers. They are all the children of Geoff and Pamela Walsh. Graham is the plaintiff/cross-defendant in these proceedings and Maurice Walsh is the defendant/cross-claimant. The parties and witnesses to these proceedings are all members of the Walsh family. It is convenient therefore and I hope without disrespect to any of them, to refer to the family members by their first names.
Until June 2000 Graham and Maurice were co-owners of the farm, on which irrigated rice is grown. That month by a Contract for Sale of Land ("the Contract") Graham sold his interest in the farm to Maurice. At the time of this sale Graham and Maurice also jointly held shares in Murrumbidgee Irrigation Limited ("MIL") the utility regulating the supply of irrigation water to the farm. The shares in MIL comprised one B class share and six C class shares ("the MIL shares"). Before the June 2000 sale Graham and Maurice held both the MIL shares and the subject property as joint tenants in equal shares.
Maurice says the Contract had the legal effect in June 2000 of transferring the MIL shares from Graham to Maurice at the same time as the title to the farm was conveyed between them. Graham says that he still holds a half interest in the MIL shares. Since the introduction of the market for water rights under s 97 of the Water Act 2007 (Cth) the MIL shares have become marketable and the Court is told that a substantial value may be attributable to them.
Graham commenced these proceedings seeking relief under Conveyancing Act 1919, s 66G to appoint trustees for sale of the MIL shares. He then seeks division of the proceeds of sale in accordance with his co-ownership at law of the MIL shares with Maurice. Conveyancing Act , s 66G relief is available in respect of shares: Commonwealth Bank of Australia v MacDonald (2000) 10 BPR 18,111.
Maurice resists Graham's claim. He admits that the MIL shares are held in co-ownership but he says that the shares should be conveyed to him as he is entitled to them in equity. He cross claims for a declaration that Graham holds his joint interest in the MIL shares on trust for Maurice, and for orders transferring the shares to him. Maurice says that Graham's half interest in the shares was not transferred to him in 2000 by an oversight, but they were conveyed to him in equity and so they should be transferred to him now. In the alternative, Maurice's case is that it was an implied term of the June 2000 Contract that Graham convey his interest in the MIL shares and any associated contractual water rights to Maurice. Maurice says further in the alternative that the Court should impose a constructive trust over Graham's interest in the MIL shares and any associated contractual water rights under doctrines of equitable estoppel. These are the issues for trial. The Walsh's farming history in MIA gives context to these disputes.
Walsh Family Farming
Geoff and Pamela Walsh operated a farming partnership in the MIA together after purchasing their first farm in the district in 1957 ("the first farm"). They inherited another farm in 1974 ("the second farm").
Geoff and Pamela's children began to join the family farming partnership from the late 1970's. Brian joined the partnership in 1978, which then became known as "G Walsh & Son". At the same time, the expanded partnership purchased another farm, "the third farm".
During the 1980's, Ian and later Maurice joined the partnership, which now changed its name to "G Walsh & Sons", to reflect the wider group of siblings then operating the first, second and third farms. In the late 1980's Ian and Brian decided to go their own way. Ian left the partnership in 1989. Brian left the partnership in 1992. After their departure a new partnership was constituted in 1992 and traded as "Walsh Agri", the members of which partnership were Geoff with a 1/3 rd interest, Pamela with a 1/3 rd interest and Maurice and his wife Kim jointly with a 1/3 rd interest.
Pamela and Geoff's other children, Graham and Kayleen were not involved in Walsh Agri or the other farming partnerships. They had other interests. Kayleen studied engineering at University. Graham studied ballet at the Victorian College of Arts and the Australian Ballet School. He later joined the Queensland Ballet Company. He occasionally also worked on the farms for which he was paid a wage.
In 1987 the family decided to buy the farm, which was by then the fourth farm that had been acquired by family members. In doing so Graham was connected with Walsh family partnership business for the first time. The still existing partnership, G Walsh & Sons supplied the funds for the purchase of the farm. But it conveyed the property into the names of Maurice as to 3/5ths and Graham as to 2/5ths as tenants in common.
To finance the acquisition of the farm the G Walsh & Sons partnership took out a loan from Westpac Bank secured by a mortgage over the farm. Over time the G Walsh & Sons partnership made all the repayments on the Westpac mortgage. Graham did not make any contribution to the purchase or to the mortgage repayments or to the farm's operating costs.
The farm had a water allocation from MIL. As Maurice and Graham were the co-owners of the subject farm their names had been placed on the MIL shares as co-owners, indeed as joint tenants as that was required by MIL's constitution. They were also recorded as parties on the Member Contracts that MIL issued to shareholders for the supply of water to the farm.
In the first half of 2000 the family began to discuss the break up of the existing family partnerships and the rationalisation of Graham and Maurice's interest in the farm. In April 2000 Graham approached Maurice and Geoff proposing sale of Graham's interest in the farm to Maurice. Graham and Maurice conducted telephone and facsimile negotiations. In April 2000 Graham and Maurice attended a more organised occasion at their parents' home that the parties have generally described as a "family conference". The sale of the farm from Graham to Maurice was finally agreed at this family conference.
What was said and agreed at this April 2000 family conference is in issue in the proceedings. Geoff and Pamela saw Maurice's purchase of Graham's interest in the farm, as one part of dissolving the partnerships. What was agreed at the April 2000 family conference is relevant to Maurice's estoppel claim. The discussion at this meeting is analysed later in these reasons in that context.
It took some time for the April 2000 family consensus to be turned into legal documentation. That was finally done by 21 June 2000 when Graham and Maurice made the Contract by participating in a simultaneous exchange of contracts and a settlement. Graham sold his interest in the farm to Maurice for $250,000. The transaction involved the immediate deposit of $25,000 and the giving of a mortgage back to Graham of $225,000 to secure the balance of the purchase price ("the Mortgage").
The Contract was connected with the wider transaction among family members. The same day Graham and Maurice and other family members executed a deed of dissolution ("Deed") of the remaining partnerships. Clause 4 of the Deed connected the Contract and the Deed, and provided that the dissolution of the partnerships was conditional on Maurice purchasing Graham's interest in the farm.
The issue in the proceedings is whether Maurice purchased not only the legal title to the real estate of the farm but whether he purchased the MIL shares and therefore the water rights associated with those shares. This is a matter of considerable importance. The supply of water for irrigation is critical to the production of rice on the farm.
The farm's Certificate of Title refers to its status as an irrigated portion. The second schedule of the Certificate of Title contains the notation:
"4. IRRIGATION FARM PURCHASE [Number not published] 'YANKO NO.1'"
After June 2000 title to the farm was transferred to Maurice, who conducted farming operations there for many years, without any communication about the farm with Graham, except to pay off the Mortgage. But the MIL shares remained in joint names.
Then in September 2008 Graham's solicitors wrote to Maurice's solicitors offering to sell to Maurice Graham's interest in the MIL shares. The offer was to sell at current market values Graham's 40% interest in the MIL shares. That letter led to this litigation.
The Contract, the Mortgage, the Deed and MIL's Constitution
Terms of the Contract, the Deed and aspects of the MIL Constitution are all relevant to the matters in issue.
The Contract
Different local firms of solicitors acted for Graham and Maurice on the Contract. Messrs Cater & Blumer Solicitors of Griffith acted for Graham in relation to the sale of his 2/5 th share in the farm. Messrs Maguire & Martin Solicitors of Leeton acted on behalf of Maurice.
The Contract was in the form of the New South Wales Law Society, Contract for Sale of Land - 1996 Edition, together with special conditions. The contract described the subject property to be conveyed by its address and gave its registered plan number and folio identifier number.
The Contract refers to improvements on the farm. Under the heading "Improvements" the Contract contains the words "2/5ths interest". The Contract defines the meaning of "improvements" as "two houses, two garages and other farm improvements - incl. shearing shed & irrigation equipment ". The words "irrigation equipment" were underlined in the Contract and did not otherwise identify any inclusions in or exclusions from the identified improvements.
The parties agreed to a number of variations to the New South Wales Law Society's 1996 Edition, Contract for Sale of Land, including the addition of special conditions. Among these variations was an additional clause 20.12 which provided:-
"Each party must do whatever is necessary after completion to carry out their obligations under this contract".
Some of the special conditions of the Contract are relevant to the matters in issue. Clauses 32 to 36 deal with the inspection of the property, its present condition and state of repair and the nature of the existing water sewerage drainage, gas and electricity and telephone services and related matters in the following terms:-
"32. SUBJECT to the provisions of this Contract the Purchaser, having inspected the property, acknowledges that he is purchasing the property in its present condition and state of repair and subject to any infestation, dilapidation, defect or affectation, defect or affectation, latent or patent and whether or not affected by insect or pest and that he will raise no objection, requisition or claim for compensation in respect of such matters including without limitation the nature quality or legality of any structure upon the property.
33. THE Purchaser acknowledges that he is purchasing the property and shall take title thereto subject to existing Water, Sewerage, Drainage, Gas and Electricity, Telephone or other installations or services (hereinafter in the condition referred to as 'any service') and shall not make any requisition, demand, objection or claim for compensation in respect to:-
(a) the nature, location, availability or non availability of any service; or
(b) if any such service is a joint service with any other property or properties; or
(c) if any service for any other property or properties of the main, pipes, wires of connections therefore pass through or over the property and vice versa; or
(d) whether or not the property is subject to or has the benefit of any rights easements or agreements in respect of any service or the mains, pipes or connections therefore.
34. NOTWITHSTANDING Clause 20.8 no clause or additional clause hereof shall merge on completion where such may reasonably be construed as intended to have a continuing effect after completion.
35. THE Purchaser acknowledges that in entering into this Contract the Purchaser does not rely upon any warranty or representation made by the Vendor or by any person on behalf of the Vendor except such as may be expressly provided herein or implied by virtue of Section 52A of the Conveyancing Act 1919 (as amended) but instead has relief entirely upon the Purchaser's own inquiries and inspection of the property.
BUT the Vendor warrants that he has not received any notice or requirement from the Leeton Shire Council or any other Public Authority alleging any fault or deficiency or requirement for work to be done or other remedial action to be taken.
36. IN this Agreement the word 'property' shall, unless the context otherwise requires, include permanent improvements thereon."
The special conditions also provided that at settlement the purchaser would pay the vendor the deposit of $25,000, of the sale consideration of $250,000, so that the balance of $225,000 was to be secured by the Mortgage back.
The Mortgage
Under the Mortgage the mortgagor, Maurice, acknowledged receipt of the principal sum of $225,000 and he agreed to repay Graham in instalments of $25,000 every year from 15 June 2001 through to 15 June 2009. By 15 June 2009 the program of mortgage repayments provided for $200,000 to be paid off. The final repayment instalment in 2009 was $25,000 plus any outstanding interest.
The Mortgage provided for Maurice to pay Graham interest at the rate of 8 per cent per annum, reducible to 5 per cent per annum, should payment be made in accordance with the Mortgage schedule. Maurice was given the right under the Mortgage at any time to reduce the principal in the amounts $10,000 or any multiple thereof.
The Mortgage was repaid in full by June 2009.
The Deed of Dissolution
When Graham and Maurice were ready their respective solicitors organised the simultaneous exchange of the Contract and settlement on 21 June 2000. The settlement proceeded that day with an exchange of contracts, the giving of an executed memorandum of transfer, the provision of the deposit of $25,000, the execution of the Mortgage back and the execution of a Deed.
All Walsh family members who were members of partnerships were parties to the Deed. It was a simple and comprehensive document which is plainly designed to end all partnership relationships between all family members. The parties to the Deed were Geoff, Pamela, Maurice, Maurice's wife, Graham, Ian and Brian. The first Schedule to the Agreement identified three partnerships, two "G Walsh & Sons" partnerships with different members and one "Walsh Agri" partnership. The exact identity of the parties to these partnerships is not of present relevance. The second Schedule is entitled "Plant Reconciliation on Partnership Dissolution" and sets out a detailed inventory of equipment and equipment values which it was proposed that each family member take away from the partnership for his or her own use. This second Schedule is plainly the product of detailed work organising the inventory items, assigning values to each of them and then allocating each item to one of the partnership members upon dissolution. I infer from the evidence about the April 2000 family conference that the preparation of this inventory and the resolution of the equipment division within it was a significant part of the discussions between the parties at that conference. The second Schedule shows considerable care and attention to achieve the objective of ensuring that each family member knew exactly what he or she could take away from the dissolved partnerships.
The Deed of 21 June 2000 did not contain any recitals. Its operative provisions provided:-
"1. The farming partnerships carried on by the parties referred to in the First Schedule hereto ('the Partnerships') are hereby declared to have been dissolved by mutual consent on the 21 st day of June 2000.
2. The parties agree that the assets of the partnerships shall be divided and/or realised and amounts shall be paid to the respective parties in accordance with the agreed 'Plant Reconciliation on Partnerships dissolution' set out in the Second Schedule hereto.
3. The parties agree that all loans to any partner or partnerships recorded in the accounts of the partnerships shall be written-off and forgive and the parties shall indemnify each other in respect of such loans.
4. The parties further agree that the dissolution of the partnerships shall be dependent upon the purchase by MAURICE GEOFFREY WALSH from GRAHAM ERNEST WALSH of his two-fifths interest in Farm [number not published], Bridge Road, Murrami in accordance with the Contract for Sale of Land dated 21 st day of June 2000.
5. The parties acknowledge that the dissolution of the partnerships is intended to end by consent the business relationship between the parties pursuant to the partnerships and each party shall indemnify each other party in respect of any actions proceedings costs claims and demands relating to or arising out of the said partnerships.
6. Each party hereto shall respectively sign execute or do such further documents deeds acts and things as any other party shall reasonably require to give effect to this Deed."
The condition provided for in clause 4 of the Deed was satisfied because the Contract between Graham and Maurice contemplated by the clause was made and settled the same day.
MIL's Constitution
The property in issue is the MIL shares. In June 2000 MIL was an Irrigation Corporation under the Irrigation Corporations Act 1994. Such Corporations are now governed by the Water Management Act 2000. The issues for determination require some understanding of the relationship between the title to the farm, the MIL shares and the water allocation for the farm.
MIL distributes water in the MIA. Each member of MIL enters a Member Contract with MIL which provides for the supply of water to particular landholdings of members. 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 standard terms of the Members Contract are an annexure to the Constitution of MIL. 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.
Shares in MIL may be transferred under MIL's Constitution but subject to special discretions. By clause 20.1(2) of the MIL Constitution the directors are granted a discretion whether or not to transfer shares to the Company's Nominee if:
"...a member ceases to be a Landholder and the Member's Base Allocation becomes an Inactive Member's Base Allocation"
An "Inactive Member's Base Allocation" is a "Member's Base Allocation" that has no "Landholding" associated with it. At all times the farm has had a Base Allocation, not an Inactive Base Allocation.
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. Clause 26.1 of the Member Contract provides:-
"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."
If an application is made to change a member's allocation into an Inactive Member's Base Allocation, the shares are no longer held by the member but under clause 20.1 they are transferred to the Company's Nominee. There is no evidence that any application was made at the time of the Contract for Graham's interest in the MIL shares to become, so far as he was concerned, an Inactive Members Base Allocation.
Clause 7.1 of the MIL Constitution requires a Member to hold a Base Member's Allocation. Clause 16.1 prohibits the transfer of the MIL shares except with a corresponding transfer of the corresponding Member's Base Allocation, which is the Base Allocation corresponding in MIL's register to a particular parcel of shares. Clause 137 requires a Member to accept all the obligations contained in the Member Contract.
Maurice Defines the Issues
Graham commenced these proceedings with an uncomplicated claim for the appointment of trustees for sale of the MIL shares under Conveyancing Act, s 66G. Maurice's defence and cross claim raise the issues for present determination. Maurice says that the practical consequence of the communications and events between April and June 2000 was that Graham and Maurice both understood that once the transactions were concluded they would have no further business relationship with one another. Maurice contends that:
(a) it is inconsistent with this mutual understanding that Graham retain all water rights in relation to the farm after June 2000;
(b) it would be contrary to commercial common sense for Graham, who had no other interest in the farm, to retain rights of survivorship as a joint tenant of the MIL shares in the event of Maurice's death;
(c) the joint retention of the MIL shares by Graham and Maurice would imply an ongoing partnership between them, which is the opposite of the finalisation of relationships contemplated between them at the family conference and under the Deed; and
(d) had the parties intended Graham to retain an interest in the MIL shares and their associated water allocation it would be expected that some management agreement would have been created in June 2000 to regulate their continuing commercial relationship to allow an annual accounting for Maurice's exclusive use of their joint MIL shares.
The parties' respective contentions raise the following three issues for consideration; first, did Graham's interest in the MIL shares pass from Graham to Maurice under the Contract itself or through the conveyance; secondly, if not, should a term be implied into the Contract that will require the transfer of Graham's interest in the MIL shares from Graham to Maurice; thirdly, is Graham otherwise estopped from claiming that an interest in the MIL shares. I will deal with the last of these issues first, because the case can be decided on this issue. In my view Maurice's estoppel argument is successful but his implied term argument is not. The Court then makes some observations about Maurice's argument based on the terms of the Contract, and concludes that it too is successful.
Equitable Estoppel
Maurice argues that if he does not have a strict legal entitlement to full ownership of the MIL shares and if the implied term argument does not succeed, then a constructive trust should be imposed on the shares under doctrines of equitable estoppel. Maurice points to the proprietary estoppel cases, where the plaintiff relies upon the defendants' "encouragement" in cases derived from Dillwyn v Llewelyn (1862) 4 DeGF & J 517; 45 ER 1285 and the "acquiescence" cases following from Ramsden v Dyson & Thornton (1866) LR1HL 129. Maurice's contention is that such an estoppel prevents Graham from asserting his strict legal rights to an interest in the MIL shares against Maurice, because Graham has either permitted or encouraged Maurice to act in relation to the MIL shares as if Maurice held the exclusive rights to them.
Maurice submits that after the reformulation of doctrines of equitable estoppel in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387; [1988] HCA 7 (" Waltons Stores ") that is it is necessary to establish four principal elements to make out an equitable estoppel. These principal requirements are sometimes formulated differently into a larger number of less comprehensive requirements. The requirements are explained in Waltons Stores at 428-429 per Brennan J; Austotel Pty Limited v Franklins Self Service Stores Pty Limited (1989) 16 NSWLR 582 at 601 per Priestley JA; and Giumelli v Giumelli (1999) 196 CLR 101 as follows:
(a) one party creates or encourages another party to adopt a particular assumption or expectation that a particular legal relationship existed or would exist between them;
(b) the latter party relies upon that assumption or expectation;
(c) the latter party's reliance is known or expected by the former party; and
(d) the latter party would suffer detriment if the assumption or expectation was not fulfilled by the former party.
(e) If the latter party then fails to act to avoid the detriment then equity may intervene.
Each of these four elements is contested in these proceedings. Before analysing the four elements it is useful to examine what was said between Graham and Maurice and other family members at the family conference in April 2000 and before 21 June 2000.
Findings in relation to the June 2000 Family Conference
All family members and their spouses were present at the family conference in April 2000. There were communications between Graham and Maurice before they gathered in April 2000. The conference was a general gathering to deal with the family issues that then needed to be resolved, especially the dissolution of their partnerships.
Both the oral evidence and documentary evidence from this period confirm that a complete separation of the interests of the family members was what all participants had in mind at this family conference.
(a) I accept that in a telephone conversation leading up to the April 2000 family conference that just before Maurice faxed an offer to Graham that Graham said to Maurice "I am selling everything, you go your way, I go mine." This brought home to Graham's mind that the result Maurice wanted from the discussions was a complete separation of all joint property so that they would not have to deal with one another again.
(b) I accept Pamela Walsh's evidence about her understanding of the arrangement being entered into at this conference. She said in her own words that "the children would all then go their separate ways and would be completely independent from each other". I find that this is an accurate summary of the effect of what was said at the family conference.
(c) Clause 5 of the Deed executed in June 2000 as a result of the family conference acknowledged that "the dissolution of the partnerships is intended to end by consent the business relationship between the parties pursuant to the partnerships...". This clearly contemplated the ending of the business relationship between the parties "pursuant to the partnerships". The Deed does not create an immediate estoppel against Graham's claim because the farm, although funded by a partnership was probably not a "business relationship" between Graham and Maurice "pursuant to the partnership". Nevertheless, the mutual expressed intention in clause 5 is quite inconsistent in my view with the idea that there would be continuing joint ownership of property in the MIL shares between Maurice and Graham throughout the term of the Mortgage, after which there would then be a further negotiation about the price of Graham's interest in the MIL shares approximately a decade later. The terms of the deed in my view strongly confirm Maurice and Pamela's evidence that the parties had discussed and agreed at the family conference upon a complete separation of all their mutual property and partnership interests.
Encouragement of Assumption
Maurice's case is that Graham encouraged him to believe that the sale of the farm included the water rights. Maurice claims this encouragement is to be inferred from Graham saying to Maurice, "I am selling everything". Again in a further telephone conversation between the two of them Maurice says he asked Graham if he was selling "houses, shares, water, pumps, everything?" to which Graham was said to have responded "yes and I am to have no further interest in the farm". These were said to be preliminary negotiating statements. I accept Maurice's evidence that this is what was said between them.
At the family conference in April 2000 Maurice says that he said to Graham, about his proposed purchase of Graham's interest "its land and water", to which Graham replied "yes".
It is difficult to accept in my view that there was not a discussion at some point between April and June 2000 in which Graham and Maurice clarified that the sale of Graham's interest in the farm included "land and water". Whilst the water rights associated with the farm were not as valuable then as they are said to be now, such an inquiry was elementary prudence. Maurice seemed to me to be a prudent man. I accept that he clarified with Graham that the sale included "land and water" and that meant water rights not water then on the farm. I accept as correct Maurice's evidence about what he said to Graham both before and at the family conference. I also accept as correct Maurice's evidence as to the assumption that he made as a result of Graham's statements. Maurice said: "Because Graham had told me that the sale was for the land and the water I assumed that I would obtain the full interest in the water allocation with MIL".
The objective probabilities also support Maurice's version. The April 2000 family conference seems to have been in part prompted by a suggestion from Graham to Maurice that Maurice buy out Graham's interest in the farm. I accept Maurice's version of this preliminary conversation, that Graham came to the farm one day and said that Graham's sale to Maurice was going to cost Maurice "big bucks". This caused a disagreement between the two to flare up and Graham left the property. One of the reasons for the family conference being called was to agree a price for the sale of Graham's interest in the farm to Maurice. The family conference was an important way for Maurice to put a ceiling on the amount of "big bucks" that Graham would be asking from him. He wanted to limit his outlay on the purchase and to have certainty about it. It is quite inconsistent with this outlook that Maurice would not have raised the issue of water rights with Graham, as he said that he did. To have a commitment from Graham that the water rights were included in the total purchase price to be paid was important to Maurice. That is why he said to Graham "it's land and water" and after some hesitation Graham finally said "yes". The importance of this to Maurice is underscored by the fact that he did not then apparently have the funds to pay the agreed purchase price on settlement but needed to give a mortgage back to Graham.
Reliance
A question next arises whether, if the conversations did take place, that they amount to an encouragement of the assumption that Maurice claims that he made that he would have a full interest in the MIL shares and the associated water allocation after the sale.
Maurice claims that following the June 2000 sale that he treated the MIL shares and the water allocation as his own property. I accept Maurice's evidence as to this. He used his MIL water allocation for the farm from 2000 to 2008 when the present dispute arose without accounting to Graham for his use. Maurice paid MIL for the full costs of the water supplied to the farm each year from 2000 onwards. Maurice used the water so supplied to develop his farming operations.
From 2002 MIL issued its accounts for that water solely in Maurice's name. How this change arose is quite important. There is no evidence of Graham signing any share transfer and remitting it to MIL to authorise a change in the name in which MIL dealt with the owner of the farm. .
Maurice says that shortly after the sale in June 2000 he asked MIL to make the change to the account name, when he realised that he was still receiving water accounts in joint names. But the company did not act on the request at first. Graham's name continued to appear on the accounts. So in 2002 Maurice again instructed MIL to make the change. MIL complied without processing any formal share transfer of Graham's interest to Maurice. Despite the fact that Maurice was not an entirely satisfactory witness and that there was hostility between him and his brother Graham, he was in my view an honest witness. I do not believe that he arranged for MIL's water accounts to be issued in his name knowing that Graham still had an interest in the MIL shares. I find that he asked for the water accounts to be altered believing that he was entitled to deal with MIL in his own name alone with respect to the MIL shares and the associated water allocation for the farm.
Between 2002 and 2008 Maurice dealt with MIL based on this change. For six years he assumed the sole liability to pay MIL for water, which Graham now says was a joint liability. The only credible explanation in my view for Maurice doing this is an honest belief on his part that he was entitled to deal with MIL as the sole legal and beneficial owner of the MIL shares and without reference to Graham.
Graham seeks by several means to explain his failure to communicate with Maurice between 2000 and 2008 about Graham's claimed interest in the MIL shares. None of Graham's explanations are very satisfactory.
First he says that he had barely spoken to Maurice since he was eighteen. It is true that Graham's relationship with Maurice was poor. But this is not a very convincing explanation. Graham did not have to broach the subject with Maurice directly. He could have raised it through solicitors as he finally did in 2008. Indeed his poor relationship with Maurice is a reason for Graham not to have been reticent in confronting Maurice about the interest he says that he still claimed in the MIL shares. He had little to lose in his relationship with Maurice by making the claim early, and risking Maurice's ire.
Secondly, when Graham was confronted in cross-examination with the proposition "you didn't actually care whether" Maurice was using the MIL water allocation after 2000, Graham said "I didn't think it was necessary for me to care, no" and that he, Graham, did not think that Maurice was going to use the water unless Maurice contacted Graham. Graham said that because he was not contacted "I presume that he [Maurice] would not use the water". I do not accept that Graham was waiting for Maurice to ring him to ask his permission to use the water that might be supplied by MIL. I do not accept that Graham thought that Maurice, if he did not ring Graham and ask permission to use the water allocation, would be buying water rights from elsewhere. If Graham's evidence as to this were to be accepted one would still expect some solicitor's letter to be written on his behalf clarifying that his interest in the MIL shares had not been transferred in June 2000 and that the water allocation associated with those shares should not thereafter be used by Maurice without Graham's permission. No such correspondence was sent or received. I do not accept this part of Graham's evidence.
Thirdly, and quite inconsistently with the second explanation, Graham said that in about June 2000 he had given Maurice a document that he understood to be "like a power of attorney" which gave Maurice unlimited access to the water allocation for Maurice to use in his dealings with MIL in buying water each year.
This was startlingly new evidence. It had not appeared in any affidavit. But Graham had become legally unrepresented shortly before the trial. Mr Trevor Hall had recently come into the case, indeed as late as the morning of the trial itself. Although Mr Hall had very professionally sought to get across the materials as quickly as he could on the morning of the trial he was in no position to anticipate evidence such as this. The course the Court took was to allow an adjournment for the issue of subpoenas to MIL and to Cater and Blumer, Solicitors to see whether any documents might be produced from those sources to confirm what Graham was saying. Graham had also mentioned in evidence in the same context the making of a will. The matter was adjourned to allow the return of these subpoenas. The Court resumed for any supplementary evidence arising out of those subpoenas and for final submissions on 17 September 2010.
The subpoena to Cater and Blumer produced a power of attorney signed on 6 September 2000. But Graham had created the power in favour of Graham's wife, Jasmin Lee Walsh, not in favour of Maurice. Under cross-examination Graham accepted that his evidence that he had executed a power of attorney in favour of Maurice must be false. In my view the Court cannot rely upon Graham's evidence about this power of attorney or about any discussions he had with Cater and Blumer in relation to it. No documents were produced by MIL that threw any further light on what happened. This episode significantly damaged Graham's credit as a witness.
Graham's third explanation is objectively improbable in any event. If a power of attorney had been created to authorise Maurice to use Graham's subsisting interest in the MIL shares one would expect some correspondence to have passed between the solicitors about the creation of the power of attorney and a legal or management regime for Maurice to continue to use Graham's interest in the shares. No such correspondence was tendered. The Cater and Blumer conveyancing file no longer exists. But the file of the solicitors acting for Maurice on the transaction, Messrs Maguire and Martin was tendered (Exhibit A). It does not refer to a power of attorney. But nor does it refer to the transfer of the MIL shares, a matter on which Mr Hall relies to infer that there can have been no agreement to transfer the MIL shares. In my view the better inference from the Maguire and Martin file is that no power of attorney of the kind that Graham describes was created. Additionally, the likely explanation for the lack of documents about the MIL share transfer in the Maguire and Martin file is that there was some kind of gap in instructions between family members and the solicitors about that aspect of the transaction. That in my view does not undermine the fact of what was actually agreed between the parties. In a transaction which had other complexities relating to a number of other family members this aspect seems not to have received the attention that it deserved.
Accordingly, I reject Graham's third explanation as to the absence of communication between himself and Maurice about the MIL shares after June 2000.
Fourthly, Graham says that he deferred communications with Maurice about the MIL shares until 2008, when the solicitor's correspondence commenced because he wanted to ensure Maurice had first satisfactorily made all his mortgage payments. Before Graham opened up discussion about payment for his interest in the MIL shares he wanted to ensure the purchase price for the land was paid. This explanation seems to me to be an afterthought. I do not accept that it is an adequate explanation for the lack of contact about the MIL shares for eight years. Maurice's mortgage obligations were clear and would be so recognised between the parties' solicitors. They would not be diminished by any further claim by Graham for the purchase price of his interest in the MIL shares. I also reject this explanation.
I accept Maurice's contention as to reliance and that he had no reason to believe that Graham retained any interest in the MIL shares and their associated water allocation. There is little doubt in my view that Maurice was conducting his farming operations on the assumption that the MIL shares were exclusively his. He did make that assumption and he acted on it.
The source of Maurice's assumption was in large measure the statements that Graham had made to him. He no doubt had a belief as to the way that the Contract operated from his solicitors who would have explained its drafting to Maurice. But Graham's statements were independently effective on his mind.
Finally, I should observe that Graham relies upon Contract Clause 35, the no warranty or representation clause, to defeat Maurice's claim that he relies on an assumption induced by Graham's representations. But this clause would only apply to the subject matter of the Contract. The assumptions about the MIL shares that Graham induced in Maurice lie outside the Contract.
Graham's Knowledge
Maurice submits that Graham knew from 2000 that Maurice assumed that he (Maurice) had the benefit of full ownership of the MIL shares.
I agree with Maurice's submission. From no later than 2002 MIL issued accounts to Maurice alone, not in joint names with Graham. At no stage after 2000 did Maurice attempt to consult Graham about Maurice's use of the water allocation for the farm. Nor at any stage did Graham offer to contribute to the cost of the water, or to divide up the profits from use of the allocation.
The lack of communication between the brothers for a period of eight years from 2000 to 2008 about any of the usual practical consequences of their joint ownership of the MIL shares is only to be explained in my view by assumptions on Graham's part: (1) that his interest in the MIL shares had been transferred to Maurice in 2000, (2) that Maurice too was conducting operations on the farm during this period on the basis that he, Maurice was legally and beneficially entitled to the whole of the MIL shares, and (3) that Maurice had no appreciation that Graham continued to claim an interest in the MIL shares. In my view, although Graham does not accept it, I find that Graham knew that Maurice assumed that Maurice had a full beneficial ownership of all the MIL shares. Maurice puts it succinctly in his final submissions, "Graham knew that Maurice was using the water allocation as his own". I agree with this submission. This is the only reasonable conclusion for Graham to draw from the lack of contact about the MIL shares from Maurice.
Detriment
Maurice's case is that if Graham is permitted to resile from the assumption he induced in Maurice and insist upon his strict legal rights that he has an interest the MIL shares, then Maurice will suffer detriment in four respects.
First, Maurice says that if statutory trustees for sale are appointed to sell the MIL shares then Maurice will lose his water allocation for the farm. To secure those rights he will have to bid against other farmers on the open market without any assurance that he will be able to secure those rights. It seems to me that there is at least a risk of this outcome.
Secondly, Maurice says he will be liable to account to Graham for the use of the water rights during the period 2000 to 2010 if Graham is found to be the absolute joint owner of half of the shares and associated water rights. Graham's solicitors have foreshadowed such a claim. To be liable to such a claim without having had the opportunity to make provision for it annually is likely to expose Maurice to an unfunded liability to which he would not have been exposed if he had not been allowed to operate the farm on the assumption that the MIL shares were entirely his. Maurice struck me as quite a conservative person who would have been likely to have made some recurrent provision for his liabilities to Graham in relation to the MIL shares had he been aware of them.
Thirdly, Maurice says if he cannot secure water allocations for the farm he will have to cease farming and the farm will diminish in value. There is no precise evidence as to the market price that Maurice may have to pay to secure a licence. But it is quite foreseeable that if Maurice cannot himself fund the purchase of Graham's interest in the MIL shares on the open market that he would be no more likely to be able to acquire an allocation from a third party.
Finally, Maurice says Water Act 2007 (Cth), s 97 introduced a market for water rights thereby transforming the marketability of the MIL shares. Maurice says that it is unconscionable for Graham to acquiesce in Maurice's use of the shares but now to insist on the sale only when they are apparently valuable. I accept that had Graham notified Maurice of his claim earlier then Maurice would have been in a better position to deal with it when the rights were less valuable. The evidence is that the value of the MIL shares has risen in recent years. Maurice's case that the detriment to him is irreversible is correct, particularly because of the requirements for him now to bid for in a more expensive market. He has lost the opportunity with dealing with Graham before the rights became so valuable that now he may not be able to afford to buy them from Graham on top of accounting for his use of the rights for approximately ten years.
In my view Maurice is successful in his estoppel claim.
Implied Term
Maurice's second contention is that a term should be implied in the Contract to the effect that "Graham would execute any documents and do all things necessary to convey to Maurice the shares in the MIL and any associated contractual rights in relation to the water allocations".
The principles relating to the implication of terms in Contracts as a matter of fact are clear. Those principles do not support the implication of this term. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 190 CLR 266 the Privy Council identified the conditions on which the Court will imply a term:
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
If the contract is commercially effective without the term the Court will not imply it: Heimann v Commonwealth of Australia (1938) SR (NSW) 691 at 695. It may be necessary to imply a term to "avoid an unworkable situation": Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, at 66, or "with the object of giving to the transaction such efficacy as both parties must have intended at all events it should have": The Moorcock (1889) 14 PD 64 at 68.
The implied term for which Maurice contends does not satisfy the requirement for business efficacy. The Contract is legally efficacious without it. The farm can be transferred without the transfer of associated MIL shares and with or without the access to irrigation that those shares represent. The implication of such a term is not necessary to ensure the transfer of title to the farm from vendor to purchaser. Indeed, that occurred on 21 June 2000. Whether the farm can be profitably operated without the transfer of Graham's interest in the MIL shares to Maurice merely goes to the market value of what is conveyed. The conveyance of the title to the farm is not unworkable without the transfer of the MIL shares. The requirement of "business efficacy" does not mean that the law will imply terms to ensure that a business proposed to be conducted on the land to be conveyed will be profitable or viable. Rather this requirement ensures that only terms that are necessary to avoid the Contract being unworkable will be implied. The Contract is legally effective in this sense without the implied term for which Maurice contends.
The law will not imply a term into the Contract that "Graham would execute any documents and do all things necessary to convey to Maurice the shares in the MIL and any associated contractual rights in relation to the water allocations."
The Effect of the Contract and the Conveyance
Maurice's contention is that on 21 June 2010 Graham's interest in the MIL shares passed to Maurice in equity under the Contract or at law in the transfer. As I have decided these proceedings on the claimed estoppel, it is not necessary to determine Maurice's various arguments in support of this contention. It is useful though for the Court to make observations about some of the arguments.
Maurice relies on Contract clause 33, as a basis to assert that the MIL shares were agreed to be transferred under the Contract. He says that after Contract the transfer through MIL has been overlooked. But Clause 33 deals with physical installations and associated services and utilities on the land. The reference to " existing Water, Sewerage, Drainage, Gas and Electricity, Telephone or other installations or services" [emphasis added] is a reference to presently existing physical facilities and the services associated with them. In my view the subject matter of Clause 33 is not rights and entitlements to water allocation or to shares in MIL. Contract Clause 33 does not assist Maurice.
There is no express reference to the transfer of water rights or to the MIL shares in the Contract. Maurice submits that there is good authority that express reference to such rights is not necessary. I do not decide this question but record here the argument put. In Elders Rural Finance Ltd v Westpac Banking Corporation (1989) 6 BPR 13,439, Bryson J, as his Honour then was, considered whether mortgage documents properly construed included or excluded water rights under the then applicable Water Act 1912. Bryson J drew upon the common law principles of riparian rights to provide an analogy as to the way that water rights should be treated as part of the subject matter of the land transferred. Bryson J applied common law principles of riparian rights and cited with approval the passage in Fisher and Lightwood, Law of Mortgages, 10th ed, at page 57 and Daniels v Pynbland Pty Ltd (12 April 1985 - unreported Supreme Court) and then went on:
"...but my view is based on what I think of as a deeper reason, that the water rights are part of the bundle of rights constituting ownership of land, so that it is not just a question of construction of the security documents to see whether it was intended to include or exclude the Water Rights; the Water Rights are part of the subject matter."
By analogy with riparian rights Bryson J found that water rights "are part of the subject matter" of the land and that such rights spring directly from a description of the land so that the land is transferred with the characteristics that it has at the time it is sold.
But Bryson J reasoned beyond the Water Act 1912. His findings do not appear to be limited to that particular statutory regime, as he explained:
"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."
Bryson J reasoned that the existence of water rights as an aspect of the right of occupation and control exercised by ownership is not a relationship severed by the statutory requirement for "a license or other entitlements to be obtained by some other person". Maurice argues that here, applying Bryson J's reasoning by analogy that the fact that a Base Allocation must be activated through MIL and that any transfer of MIL shares only occurs with its permission does not sever the relationship between the water rights and ownership of the land.
Maurice submits that, as in Elders Rural Finance Ltd v Westpac Banking Corporation , here the Court does not need to ask whether the Contract excluded or included water rights. Rather, he submits that the water allocation and the associated shareholding can be found to be inherently part of the bundle of rights of ownership sold under the Contract.
But in my view this argument of Maurice cannot be decided without detailed analysis of the operation of the MIL Constitution in relation to the title to the farm. As these proceedings can be decided on other grounds this analysis is not necessary.
Conclusions and Orders
In the result therefore, for the reasons set out above, the plaintiff's claim for relief under Conveyancing Act s66G fails. The Court will declare that the plaintiff/cross-defendant holds his interest in the MIL shares in trust for the defendant/cross claimant, who is entitled to an order for the transfer of that interest to him. The defendant/cross claimant has been successful. The usual order for costs would be that costs follow the event and the defendant/cross claimant would be entitled to an order for costs. But the plaintiff/cross-defendant may wish to argue for the making of some other order. I will allow the plaintiff/cross-defendant a period of seven days to file a motion for any other order, failing which the plaintiff/cross-defendant will be ordered to pay the defendant/cross claimant's costs of these proceedings. Consequential issues may arise in the implementation of these orders, so I will grant the parties liberty to apply.
Accordingly, the Court makes the following declarations and orders:
(a) Dismiss the Plaintiff/Cross-Defendant's claim for appointment of trustees for sale of shares in Murrumbidgee Irrigation Limited (MIL) pursuant to Conveyancing Act 1919 s 66G;
(b) Declare that the Plaintiff/Cross-Defendant holds his interest in the MIL shares on trust for the defendant/cross-claimant;
(c) Order that Plaintiff/Cross-Defendant transfer his interest in the MIL shares to the Defendant/Cross-Claimant;
(d) Reserve costs subject to order (e) and (f);
(e) Unless the Plaintiff/Cross-Defendant files a motion in relation to the costs of these proceedings by 4.00pm on Thursday 14 April 2011, order the Plaintiff/Cross-Defendant to pay the Defendant/Cross-Claimant's costs of these proceedings;
(f) Direct that any motion filed pursuant to order (e) may be made returnable before me at 9.30am on Thursday 28 April, 2011; and
(g) Grant liberty to apply on 3 days notice.
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Decision last updated: 08 April 2011
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