Section 51(xxxi) of the Constitution prohibits the Commonwealth from “acquiring property” other than on “just terms”. In this case, the plaintiffs alleged that certain changes to the water licensing regime in New South Wales were, in effect, an acquisition of property and had not been made on just terms.

By majority, the court decided (Heydon J dissenting) that there was no common law right to water in this instance, and that changes to water licences which reduced the plaintiffs’ entitlement to extract ground water are not the acquisition of property for the purposes of s51(xxxi) of the Constitution.

The extraction of water in New South Wales was regulated by the Water Act 1912 until that Act was repealed by the Water Management Act in 2000. This litigation resulted from the replacement of one statutory regime with the other. Before the changes to the law the plaintiffs extracted water from the Lower Lachlan Groundwater System in central New South Wales to use for irrigation purposes under a number of “bore licences” issued under the 1912 Act. On 1 February 2008, these bore licences were replaced by a new system of licenses issued under the 2000 Act, called “aquifer access licences”. The plaintiffs were permitted to take less water (approximately two thirds less) than had been allowed under the bore licences.

The plaintiffs contended that the steps taken under the 2000 Act to reduce their access to groundwater amounted to an acquisition of their property otherwise than on just terms, contrary to the constitutional guarantee found in s51(xxxi) of the Constitution.

Judgment of French CJ, Gummow J and Crennan J

Justices French, Gummow and Crennan concluded that there is no common law right to take and use groundwater in Australia. Amendments to the 1912 Act, made in 1966, granted the right “to use and flow and to the control of all sub-surface water” (s4B) to what was then the Water Resources Commission “for the benefit of the Crown” and it was made an offence to “interfere in any way with sub-surface water or obstruct its flow” (s4C). The effect of s4B was to remove any common law rights to ground water.

Their Honours also held that the amendment of the licences was not an acquisition of property within the meaning of s51(xxxi). Water is a natural resource and the state always had the power to limit the volume of water taken from that resource. The state exercised that power from time to time by legislation imposing a general prohibition upon access to and use of that water, but permitting access through a licensing system. Changes of the rights of the plaintiffs to use a limited natural resource did not constitute an “acquisition” by the state in the s51(xxxi) sense. It must be “acquisition”, not merely “taking,” “deprivation” or “destruction” of property. Their Honours held that, in order to amount to an ‘acquisition’, someone must obtain some sort of identifiable benefit.

On that basis, the justices distinguished Newcrest Mining (WA) Ltd v The Commonwealth (1997) 190 CLR 513, where it was held that there was an “acquisition” within the meaning of s51(xxxi) when the Commonwealth took over interests in a mining tenement. In that case, the Commonwealth benefited because Newcrest was no longer entitled to remove valuable minerals from Commonwealth land.

Since the plaintiffs failed at the “acquisition” step, the Justices felt it unnecessary to deal with the question of whether the licences were “property” within the meaning of s51(xxxi) or whether the acquisition was on “just terms”.

Judgment of Hayne, Kiefel and Bell JJ

Justices Hayne, Kiefel and Bell discussed the difficulties in applying notions of ownership or property to water in the ground or in a flowing stream. While water is flowing, no part of the water that flows can be isolated and tagged as water “owned” by some person, and it is this quality of instability that make legal characterisation difficult.

Their Honours held that there was no acquisition of property for s51(xxxi) purposes, because:

1. Unlike minerals, if groundwater is extracted it will ordinarily be replaced to some extent by natural processes over time. Groundwater is fugitive in nature.
2. Bore and aquifer licences are created by legislation and are ‘inherently fragile’. Each form of licence is an exception to a general prohibition against the taking of groundwater. Being statutory rights, these rights were always open to change or termination.
3. Groundwater, before extraction, has not yet been ‘reduced to possession’. Water in the ground is a replaceable but fugitive resource. No one has, or can have property in it until it is ‘reduced to possession’.
4. The rights that the state has in relation to the control, use and flow of groundwater are those of statute (since the 1966 additions to the 1912 Act) for the purposes of controlling access to a public resource.

Justices Hayne, Kiefel and Bell accepted that the licences were a “species of property”, since the entitlements attached to the bore licences could be traded or used as security. Their Honours also accepted that, until the cancellation of their bore licences, the plaintiffs had “entitlements” to a certain volume of water and that after their cancellation their “entitlements” were less. They held, however, that these “entitlements” were ‘fragile’, and could be reduced at any time. Consistent with the judgment of Justices French, Gummow and Crennan, Justices Hayne, Kiefel and Bell stated that an “acquisition of property” must involve some other person gaining an “identifiable and measurable advantage” as a result of the reduction in the plaintiff’s entitlements. Someone else must acquire an interest in property, however slight or insubstantial.

Their Honours asked whether the state had derived some advantage from replacing the bore licences or reducing water entitlements? For the four reasons stated above, their Honours held the answer was “no”. The state gained no identifiable or measurable advantage from the steps taken in relation to the plaintiff’s water licences. The rights the plaintiffs has under their bore license did not in any sense “return” to the state upon cancellation of the licences. The state gained no larger or different right itself to extract or permit others to extract water from that system. The measure of control which the state has over the resource was unaltered by the cancellation of any particular entitlements to extract groundwater. They held that, although sub-surface water has been vested in the state since 1966, it was not right to describe the consequence of that vesting as giving the state ownership of, or property in, the groundwater. The amount of water the state could extract was bounded only by the physical state and capacity of the aquifer, and such policy constraints the state chose to apply.

Justices Hayne, Kiefel and Bell also distinguished Newcrest. The land in question in that case, except for the minerals, was vested in the Director of National Parks and Wildlife. Both the Director and the Commonwealth thus acquired identifiable and measurable advantages from the acquisition. The Director acquired the land as Newcrest no longer occupied it, and the Commonwealth acquired the minerals freed from the rights of Newcrest to mine them.

It is worth noting that Justices Hayne, Kiefel and Bell include in their judgement a helpful chronology of water regulation in Australia.

Dissenting judgement of Heydon J

Justice Heydon contended that s 51(xxxi) is a “provision of a fundamental character”, a “constitutional guarantee”, “a very great constitutional safeguard” and that “it is to be given the liberal construction appropriate to such a constitutional provision”.

He cited Justice Dixon in Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 at 349 as saying “51(xxxi) is not the be confined pedantically … [and] extends to innominate and anamalous interests and includes the assumption and indefinite continuance of exclusive possession and control for the purposes of the Commonwealth of any subject of property”, and agreeds that a decision maker should lean towards a wider rather than narrower concept of property, and look beyond legal forms to the substance of the matter.

Justice Heydon agreed with the majority of the court that there was no common law right to extract water.

Nevertheless, his Honour contended that the bore licences to be a form of property in that they conveyed statutory proprietary rights on the licensee. The bore licences were transferable with the land, their value was taken into account in determining the value of the land to which they were attached, they were transferable separately from the land, and they were commonly taken into account, together with the land, by lenders in securing loans to the owners or of the land, and they were provided as part of that security.

Justice Heydon also contended that it was of relevance to the application of s 51(xxxi) if the licensees had incurred expense in obtaining, holding or exploiting the permit (similar to the opinion of Justice Callinan in Smith v ANL Ltd (2000) 204 CLR 493 at 544). Bore licensees often paid consideration for a transfer, paid fees, relied on licences to increase the value of their land, and many were required to sink bores and maintaining equipment capable of extracting water from those bores.

His Honour agreed that termination, destruction or interference with property is not enough to attract s51(xxx1). He concurred with his fellow judges that the question of whether or not there was an acquisition depends on the identification of some advantage accruing to New South Wales. However, contrary to the majority judges, Heydon J believed NSW did accrue an advantage as follows:

1. New South Wales regained control over the water resources that the plaintiffs lost. What were property rights in the plaintiffs’ hands, to the extent to which they were reduced, became in the hands of New South Wales rights of control.
2. The extinguishment of the bore licensees’ rights relieved New South Wales of several liabilities. The first is the liability to ensure that the bore licensees received the water they were entitled to. The second is the liability to not interfere with the bore licensees’ rights unlawfully. There was also a duty on the Ministerial Corporation to give notice in relation to the imposition of limitations and conditions on bore licences, and to accept and consider written submissions on this. The extinguishment of the bore licensees rights relieved New South Wales of these liabilities, which provided relief, which results in the acquisition of property by New South Wales.
3. There was a contingent increase in capacity of New South Wales to take or grant rights to water. New South Wales gained something that it did not have before 2008 – a capacity to take more water itself or to issue more rights to others without damaging the goal of sustainability. This capacity will be a benefit or an advantage that New South Wales has acquired within the meaning of s 51(xxxi).

In conclusion, there has been an acquisition of property by NSW, even though it might not be proprietary in the conventional sense.

For these reasons, Justice Heydon concluded that the acquisition was not on just terms.

• The full decision is available on Austlii