Land and Environment Court New South Wales Medium Neutral Citation: Arnold v Minister Administering the Water Management Act 2000 (No 5) [2013] NSWLEC 42 Decision date: 10 April 2013 Jurisdiction: Class 4 Before: Biscoe J Decision: (1) The applicants' claim of ineffectual cancellation of conjunctive water use rights because of non-compliance with ss 116C and 117H of the Water Act 1912 and consequential judicial review grounds were not pleaded or properly particularised and the Court declines to entertain them. (2) The decision of the question whether the Court should entertain the unpleaded discretionary defence that relief not be granted on the ground that it works disproportionate injustice to third parties, and, if so, the question whether that defence should be upheld, be determined separately from and after any other question in the present trial at a further trial in the proceedings if the applicants are adjudged to be otherwise entitled to the declaratory relief as to invalidity that they seek. Catchwords: PRACTICE AND PROCEDURE:- judicial review proceedings - respondents' objection at trial that whether a claim that the applicants' conjunctive water use rights were ineffectually cancelled because of non-compliance with ss 116C and 117H of the Water Act 1912 and consequential judicial review grounds were not pleaded or properly particularised and that the Court should entertain them - applicants' objection at trial that discretionary defence that relief not be granted on ground that it would work disproportionate injustice to third parties was not pleaded and that the Court should not entertain it. Legislation Cited: Civil Procedure Act 2005 s 56 Water Act 1912 ss 116C, 117H Water Management Act 2000 Division 2, Part 2, ss 47(2)(a), 50 Lower Murray Groundwater Source (Plan) Water Management (General) Amendment (Lower Murray) Regulation 2006 Cases Cited: Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531, (2007) 157 LGERA 379 Arnold v Minister Administering Water Management Act [2008] NSWCA 338, (2008) 73 NSWLR 196 Arnold v Minister Administering the Water Management Act [2010] HCA 3, (2010) 240 CLR 242 Harvey v Minister Administering the Water Management Act 2000; Tubbo v Minister Administering the Water Management Act 2000 [2008] NSWLEC 165, (2008) 160 LGERA 50 ICM Agriculture Pty Ltd v The Commonwealth of Australia [2009] HCA 51, (2009) 240 CLR 140 NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act [2011] NSWLEC 51, (2011) 181 LGERA 166 NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act (No 2) [2011] NSWLEC 115 NA & J Investments Pty Limited v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act (No 3) [2011] NSWLEC 171 NA &J Investments Pty Limited v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act (No 4) [2012] NSWLEC 120 Category: Procedural and other rulings Parties: Alan Arnold & Ors (Applicants) Minister Administering the Water Management Act 2000 (First Respondent) State of New South Wales (Second Respondent) Representation: COUNSEL: F Corsaro SC and P E King (Applicants) S Lloyd SC, J Hutton and J Lucy (Respondents) SOLICITORS: Taylor & Whitty (Applicants) Crown Solicitor's Office (Respondents) File Number(s): 40049/07 EX TEMPORE Judgment 1These are rulings during the hearing of the proceedings on (a) the respondents' objection to the applicants raising a claim that the respondents contend was not pleaded or adequately particularised, and (b) the applicants' objection to an unpleaded discretionary defence. 2The applicants, who are approximately 120 farmers in the Lower Murray River region, challenge the validity of the Minister's Water Sharing Plan for the Lower Murray Groundwater Source made in 2006 (Plan) pursuant to s 50 of the linked Water Management Act 2000 (the 2000 Act) and the validity of the Water Management (General) Amendment (Lower Murray) Regulation 2006 (Amending Regulation). Under this statutory scheme, the applicants' water extraction entitlements were substantially reduced compared with their former water extraction entitlements under the Water Act 1912 (the 1912 Act). The respondents are the Minister who made the Plan and the State of New South Wales. 3Although the proceedings were commenced in 2007, they stalled until 2010 as against the present respondents due to the applicants' unsuccessful appeals to the Court of Appeal and the High Court against the decision of Lloyd J in 2007 summarily dismissing the proceedings against the then third respondent, the Commonwealth of Australia: Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531, (2007) 157 LGERA 379; Arnold v Minister Administering Water Management Act [2008] NSWCA 338, (2008) 73 NSWLR 196; Arnold v Minister Administering the Water Management Act [2010] HCA 3, (2010) 240 CLR 242. 4There followed four substantial interlocutory judgments including striking out parts of the Points of Claim and advance rulings on evidence in these proceedings and other similar proceedings running in tandem for interlocutory purposes brought by farmers in the Lower Murrumbidgee River region against the same respondents: NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act [2011] NSWLEC 51, (2011) 181 LGERA 166 (Craig J); NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 (No 2) [2011] NSWLEC 115 (Craig J); NA & J Investments Pty Limited v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act (No 3) [2011] NSWLEC 171 (Craig J); NA &J Investments Pty Limited v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act (No 4) [2012] NSWLEC 120 (Biscoe J). The applicants' allegedly unpleaded claim 5One of the applicants' pleaded grounds of challenge in their Points of Claim was and is that the Plan and the Amending Regulation manifested irrationality in both reasoning and fact finding in four respects. One of the pleaded respects, on which the applicants rely for present purposes, is: Failure to address anomalies occurring in the plan making process between particular Applicants and other landholders in an equitable or efficient manner or at all. 6In May 2012 in NA & J (No 4) I directed the applicants to give particulars of that paragraph of the pleading. By letter dated 28 May 2012 to the respondents' solicitors, the applicants' solicitors provided the particulars. One of the particulars, on which the applicants rely for present purposes, was in the following terms: In making the Plan the Minister paid no or no sufficient regard to the existence of the continuing conjunctive use rights of the Applicants which the Second Respondent had purportedly but ineffectually cancelled in or about 1 July 2006 as part of the ASGE process, as a result of which the Minister proceeded upon a mistaken apprehension as to a fundamental factual assumption namely the water usage and usage rights of the Applicants whereby the Plan was irrational or manifestly unreasonable. 7Subsequently, in November 2012, the applicants filed Fifth Further Amended Points of Claim which made it clear that the applicants were challenging not only the validity of the Plan but also the validity of the Amending Regulation on mostly the same grounds. There had been correspondence between the parties' lawyers about this in late May 2012. This amended pleading did not amend the part of the pleading quoted above at [5] concerning conjunctive use rights. 8Conjunctive use rights in relation to the Lower Lachlan Groundwater System were described in ICM Agriculture Pty Ltd v The Commonwealth of Australia [2009] HCA 51, (2009) 240 CLR 140 at [67] in the following terms, which apply in the present case except that for "July 1998" read "July 2006": From March 1984 to July 1998, the Department adopted a policy applying where licences in respect of both groundwater and surface water had been issued in respect of the same property. If the announced surface water allocation for the relevant surface water licence was, as at 1 October of a particular year, less than 100% of the surface water licence entitlement, the conditions of the relevant bore licence were to permit extraction of the "Conjunctive Use Amount", being the shortfall between the surface water licence entitlement and the surface water allocation. It should be here noted that it is generally more expensive to pump groundwater to the surface than it is to use surface water. This policy was applied to the plaintiffs' bore licences. The policy was revoked from 23 July 1998. New bore licences would not include a Conjunctive Use Amount, and existing licences would be amended to remove any entitlement to a Conjunctive Use Amount. 9The applicants gave no indication to the respondents of the basis of the ineffectual cancellation of conjunctive use rights alleged in the May 2012 letter until the applicants' written opening submissions were received shortly before the hearing commenced. It was contended at [30] - [31] of those submissions that the existence or removal of conjunctive use licences had a socio-economic impact on the community, which was required to be considered by the Minister when he made the Plan; that the Minister failed to consider the socio-economic impacts of their removal because the State did not observe the requirements of s 116C(2) and 117H(2) of the 1912 Act in purporting to cancel conjunctive use rights; that these requirements were referred to in ICM at [23] per Heydon J; therefore the Minister proceeded upon a mistaken factual assumption as to the usage and usage rights of the applicants; and therefore the decision to make the Plan was irrational or manifestly unreasonable and the conjunctive use licensees were not afforded procedural fairness. 10According to the applicants, an example of the notice of cancellation of conjunctive use rights is a notice dated 6 June 2006 expressed to be under s 116C(1) of the 1912 Act given by the Water Administration Ministerial Corporation to one of the applicants, a copy of which is annexed to the affidavit of Angela Hodge (at 153). 11Sections 116C and 117H of the 1912 Act provided: 116C Limitations and conditions (1) Limitations and conditions referred to in section 115 (1) or (2) or 116 (1) may be imposed on a licence at the time of, or from time to time after, the issue or grant of the licence. (2) Before imposing a limitation or condition on a licence, the Ministerial Corporation: (a) must cause written notice of its intention to impose such a limitation or condition to be served on the licensee or proposed licensee, and (b) must give the licensee or proposed licensee a reasonable opportunity to make written submissions to the Ministerial Corporation with respect to the limitation or condition to be imposed, and (c) must have regard to any submission that is duly made. 117H Cancellation and suspension of licences (1) The Ministerial Corporation may cancel or suspend a licence if it is satisfied that the licensee has failed to comply with: (a) any limitation or condition of the licence, or (b) any requirement imposed by or under this Part, whether or not the licensee has been prosecuted or convicted for an offence arising out of that failure to comply. (2) Before taking any action under this section, the Ministerial Corporation: (a) must cause written notice of the proposed action to be given to the licensee, and (b) must give the licensee a reasonable opportunity to make written submissions to the Ministerial Corporation with respect to the proposed action, and (c) must have regard to any submission that is duly made. 12The respondents promptly objected in their written opening submissions at [270] - [272] that none of this had been pleaded; that it had been noted at directions hearings that procedural fairness had not been pleaded; that, in contrast, denial of procedural fairness had been pleaded in the in-tandem NA & J proceedings; that the respondents' case preparation had been carried out on the basis that these matters were not in issue and, if they were now allowed to be raised, the respondents would require an opportunity to prepare further evidence and submissions in relation to them. The respondents pointed out in subsequent oral submissions that the decision-maker under ss 116C and 117H was the Water Administration Ministerial Corporation, which is not a party to the proceedings; and submitted that, even assuming the cancellation of the conjunctive use rights was ineffectual, it could not have been irrational for the Minister not to have had regard to that matter given that the validity of the cancellation has not been challenged in the several months leading up to the Minister's October 2006 decision to make the Plan. 13In reply, the applicants submitted orally that they were able to press this claim given that the respondents did not reply to their May 2012 letter by complaining that it had not been pleaded or properly particularised; that it was therefore not unreasonable for the applicants not to amend their pleading; that the cancellation of conjunctive use rights was referred to in an affidavit by a Mr Jacobs filed in the respondents' case; that the mandatory nature of s 116C was referred to in ICM at [234] per Heydon J; and that it is difficult to see prejudice to the respondents because all that is required is to check whether the notices that were given complied with s 116C. 14The applicants in the course of their oral opening handed up, as an aide memoire, a sample analysis of the value of the conjunctive use rights of six of the applicants, which attributed to those rights an inactive value of $85 per megalitre and an active value of $304 per megalitre. For example, in relation to the applicant Aldebaran Pastoral Company Pty Ltd the analysis purports to show that the inactive value totalled $194,395 and the active value totalled $695,248. The applicants contended that this analysis was relevant to pleaded claims that their property had been acquired other than on just terms (by the Commonwealth of Australia acting through the agency of the State) contrary to s 51(xxxi) of the Commonwealth Constitution and that the Minister had failed to take account of socioeconomic considerations. It is unnecessary for present purpose to pass judgment on that contention, although I note that the respondents dispute it and that there is a question whether this constitutional claim has any life given the absence of the Commonwealth of Australia as a respondent and the decisions of the High Court in Arnold and ICM. I am unclear as to whether the analysis is also said to be relevant to the applicants' claim for damages for conversion of property, which the respondents contend has not been pleaded and which has been deferred until after determination of the balance of the proceedings (see NA & J (No 4)). 15In my opinion, this claim of breach of ss 116C and 117H and consequential judicial review grounds was not pleaded. The part of the pleading quoted above at [5], on which the applicants rely, was obscure but I do not think it can reasonably be construed as including this claim. The Application and the Points of Claim do not seek any relief that the decision to cancel conjunctive use rights under the 1912 Act was invalid on this ground. It follows that the particulars provided in the letter of 28 May 2012 quoted above at [6] and the claim as expressed in the applicants' opening written submissions summarised above at [9], did not come within the pleading. The absence of a pleaded denial of procedural fairness contrasts unhappily with the express pleading of a denial of procedural fairness at [21] - [25] of the Fifth Further Amended Points of Claim in the in-tandem NA & J proceedings conducted by the applicants' lawyers for other farmers in the Lower Murrumbidgee region against the same respondents, referred to above at [3]. The transcript of an interlocutory hearing of both matters on 23 May 2012 (at p 9) records counsel for the applicants acknowledging that there was a procedural fairness ground of invalidity in the NA & J proceedings but not in the Arnold proceedings. 16In any event, I consider that the particulars provided in the 28 May 2012 letter were inadequate because they gave no indication of what the basis was for the allegation therein that the conjunctive use rights of the applicants had been "ineffectually cancelled". I do not accept that this should be disregarded merely because the respondents did not reply asking what the basis was or asserting that it had not been pleaded. The basis of the alleged ineffectual cancellation and consequential judicial review grounds were not communicated by the applicants until shortly before the hearing in their written opening submissions. The reference in Mr Jacobs' affidavit to the cancellation of conjunctive use rights was only as part of the history. Of particular significance is that the applicants' late disclosure of the basis of this claim, some six years after the proceedings were commenced, has prejudiced the respondents because they say, and I accept, that if the applicants are now permitted to raise it, they would require an opportunity to investigate and prepare further evidence and submissions in relation to it. The lateness is of some added significance because the period within which judicial review proceedings had to be commenced challenging the validity of the Plan was three months after it was published in the Gazette (in 2006): s 47(2)(a). 17In the circumstances, it is difficult to reconcile allowing this unpleaded claim to be raised at this late stage with the overriding purpose of the Civil Procedure Act 2005 and the rules of court to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings and with the duty of the Court to give effect to the overriding purpose when it exercises any power given to it by the Act or by rules of court: s 56 Civil Procedure Act. 18For these reasons, I decline to entertain the claim and its consequential judicial review grounds. The respondents' unpleaded discretionary defence 19The applicants objected to an unpleaded discretionary defence raised in the respondents' written opening submissions at [263] - [264]. There the respondents contended that, if the applicants otherwise succeed, a declaration that the Plan or the Amending Regulation is invalid, over six years after they came into operation, should not be made on the discretionary ground that it works an injustice to third parties that is disproportionate to the end served by any entitlements to the applicants. The basis of the submission was that there were 174 licence holders affected by the Plan and the Amending Regulation who are likely to have organised their affairs on the assumption that they were valid; and that since the 2000 Act provides for dealings with access licences (Division 2 of Part 2), a declaration of invalidity would affect not only the original licence holders but those with whom they have traded. 20The applicants objected that this discretionary defence has not been pleaded and they are thereby prejudiced because: (a) they are not in a position to deal with it whilst conducting this trial; (b) if it had been raised in a timely manner, they could have invited the Court to make directions to ensure that any third party licence holders who wanted to be heard in relation to the discretionary issues could be heard; and (c) third party licence holders might say, for example, that they do not care if declarations of invalidity are made. The applicants submitted that if the Court is minded to deal with the discretionary defence, then, if the applicants are otherwise successful, the Court should hear the parties as to the discretionary defence and whether any directions should be given before determining it. 21In reply the respondents submitted that: (a) their Points of Defence only have to plead matters of fact; (b) it is unnecessary for them to rely on dealings in access licences because it is enough to make the point that third parties are affected; (c) this is so obvious, particularly since the applicants acknowledge they are not all the former bore hole licensees under the 1912 Act, that it cannot possibly have taken the applicants by surprise; (d) relief on judicial review grounds is always discretionary where, as is common, third party rights are affected; (e) the situation is no worse than raising a new point of law (but no new facts) on appeal where the appellate court can have regard to the new point of law because the other party is not relevantly prejudiced; and (e) if a judgment otherwise favourable to the applicants is delivered and the applicants still require more time to answer the discretionary defence submission, then the Court would no doubt hear from them. 22In Harvey v Minister Administering the Water Management Act 2000; Tubbo v Minister Administering the Water Management Act 2000 [2008] NSWLEC 165, (2008) 160 LGERA 50 at [252] Jagot J said: Specific evidence of reliance on the validity of the plan as amended by licence holders is not required. It is obvious that since 1 October 2006 many people will have made arrangements in reliance on the operation of the plan, including the temporary and permanent trades and compensatory payments referred to by the respondent. The fact that the challenge was brought within the period of three months provided in s 47(2) would not undermine the inevitable question of the proportionality of the remedy of declaring the amendment order invalid having regard to the potential impacts on the position of third parties (as contemplated by Vanmeld at [78]). 23Given the obvious potential adverse impact on third parties referred to in Harvey, there is a strong argument that the Court should entertain the discretionary defence notwithstanding that it was not pleaded. It is distinguishable from an unpleaded discretionary defence only affecting the interests of the parties, which may well not be entertained. However a decision on that question may be deferred because the discretionary defence only arises if the applicants are otherwise successful and entitled to relief in the proceedings. Further, procedural fairness requires that the applicants be given a reasonable opportunity of dealing with the discretionary defence and, in the circumstances, they should not be required to do so whilst this trial is proceeding. In my view, the preferable way forward is to make the following order: The decision of the question whether the Court should entertain the unpleaded discretionary defence that relief not be granted on the ground that it works disproportionate injustice to third parties and, if so, the question whether that defence should be upheld, be determined separately from and after any other question in the present trial at a further trial in the proceedings if the applicants are adjudged to be otherwise entitled to the declaratory relief as to invalidity that they seek. Amendments 10 April 2013 - typographical error - case citation number Amended paragraphs: cover DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 April 2013