Land and Environment Court New South Wales

• Medium Neutral Citation: Arnold v Minister Administering the Water Management Act 2000 (No 6) [2013] NSWLEC 73
• Hearing dates: 2-19, 24 April 2013
• Decision date: 31 May 2013
• Jurisdiction: Class 4
• Before: Biscoe J

Decision

Proceedings dismissed with costs

• Catchwords: JUDICIAL REVIEW - Water Sharing Plan for Lower Murray Groundwater Source made by Minister pursuant to s 50 Water Management Act 2000 and the linked Water Management (General) Amendment (Lower Murray) Regulation 2006 substantially reduce former water extraction entitlements of farmer licence holders - whether Plan and Amending Regulation invalid - whether mandatory for Minister when making the Plan to consider a sound and reliable hydrogeological numeric model to calculate sustainable use and recharge and whether Minister failed to consider that matter - whether Minister when making the Plan had regard to a prohibited irrelevant consideration being an inter-governmental agreement's targeted reductions in water entitlements - whether Plan's adoption of a specified extraction limit was irrational or manifestly unreasonable because the hydrogeological model on which it was based was fundamentally flawed and because the zones in it were hydrogeologically separate from the rest of the water management areas - whether Minister under a duty to have due regard to socio-economic impacts of the proposed Plan and whether breached duty by not assessing socio-economic impacts in a formal study or at the farm-by-farm level or in other respects - whether Plan bad in form because, contrary to 2000 Act, it failed to deal with the requirements for water extraction under access licences - principles of judicial review - admissibility of expert evidence in judicial review proceedings.
• Legislation Cited: Administrative Decisions (Judicial Review) Act 1977 (Cth); Land Acquisition (Just Terms Compensation) Act 1991; Protection of the Environment Administration Act 1991 s 6(2); Water Act 1912 Part 5; Water Act 2007 (Cth); Water Management Act 2000; Commonwealth Constitution ss 51(xxxi), 100; Water Management (General) Regulation 2004; Water Management (General) Regulation 2011; Water Management (General) Amendment (Lower Murray) Regulation 2006; Water Sharing Plan for the Lower Murray Groundwater Source; Water Sharing Plan for the Lower Murray Shallow Groundwater Source; Land and Environment Court Rules 2007 r 4.3; Uniform Civil Procedure Rules 2005 Pt 59 r 59.9; Land and Environment Court Practice Note Class 4 [14(b)]; Practice Note No. SC CL 3 Administrative Law List [23]
• Cases Cited: Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531, (2007) 157 LGERA 379; Arnold v Minister Administering the Water Management Act 2000 (No 2) [2009] NSWLEC 55; Arnold v Minister Administering the Water Management Act 2000 (No 3) [2009] NSWLEC 56, (2009) 165 LGERA 329; Arnold v Minister Administering the Water Management Act 2000 (No 4) [2009] NSWLEC 87; Arnold v Minister Administering the Water Management Act 2000 (No 5) [2013] NSWLEC 42; Arnold v Minister Administering Water Management Act 2000 [2008] NSWCA 338, (2008) 73 NSWLR 196; Arnold v Minister Administering the Water Management Act 2000 [2010] HCA 3, (2010) 240 CLR 242; Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223; Attorney-General (NT) v Minister for Aboriginal Affairs (1989) 23 FCR 536; Austral Fisheries Pty Ltd v Minister for Primary Industries and Energy (1992) 37 FCR 463; Australian Broadcasting Tribunal v Bond [1990] HCA 33, (1990) 170 CLR 321; Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707, (2005) 148 FCR 446; Australians for Sustainable Development Inc v Minister for Planning [2011] NSWLEC 33, (2011) 182 LGERA 370; Azzopardi v Tasman UEB Industries Ltd [1985] 4 NSWLR 139; Bienke v Minister for Primary Industries and Energy (1994) 125 ALR 151; Bienke v Minister for Primary Industries and Energy (1996) 63 FCR 567; Bruce v Cole (1998) 45 NSWLR 163; Calardu Penrith Pty Ltd v Penrith City Council [2010] NSWLEC 50; Caldera Environment Centre Inc v Tweed Shire Council [1993] NSWLEC 102; Capital Airport Group Pty Ltd v Director-General of the NSW Department of Planning [2011] NSWLEC 22; Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5, (2000) 199 CLR 135; D'Amore v Independent Commission Against Corruption [2012] NSWSC 473; Friends of King Edward Park Inc v Newcastle City Council [2012] NSWLEC 113; Fullerton Cove Residents Action Group Inc v Dart Energy Ltd (No 2) [2013] NSWLEC 38; Gibson v Minister for Finance, Natural Resources and the Arts [2012] QSC 132, (2012) 192 LGERA 118; Gilbank v Bloore (No 2) [2012] NSWLEC 273; Harvey and Tubbo Pty Ltd v Minister Administering the Water Management Act 2000; [2008] NSWLEC 165, (2008) 160 LGERA 50; House v The King [1936] HCA 40, (1936) 55 CLR 499; ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51, (2009) 240 CLR 140; Jones v Dunkel [1959] HCA 8, (1959) 101 CLR 298; King v Great Lakes Shire Council (1986) 58 LGRA 366; Luu v Renevier (1989) 91 ALR 39; McCormack v Deputy Commissioner of Taxation Large Business & International [2001] FCA 1700, (2001) 114 FCR 574; McHugh Holdings Pty Ltd v Director General Communities NSW [2009] NSWSC 1359; Marrickville Metro Shopping Centre Pty Ltd v Marrickville Council [2010] NSWCA 145, (2010) 174 LGERA 67; Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40, (1986) 162 CLR 24; Minister for Immigration and Citizenship v Li [2013] HCA 18; Minister for Immigration and Citizenship v SZGUR [2011] HCA 1, (2011) 241 CLR 594; Minister for Immigration and Citizenship v SZIAI [2009] HCA 39, (2009) 259 ALR 429; Minister for Immigration and Citizenship v SZMDS [2010] HCA 16, (2010) 240 CLR 611; Minister for Immigration and Ethnic Affairs v Teoh [1995] HCA 20, (1995) 183 CLR 273; Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21, (1999) 197 CLR 611; Minister for Immigration and Multicultural and Indigenous Affairs v Huynh [2004] FCAFC 256, (2004) 139 FCR 505; Minister for Immigration and Multicultural and Indigenous Affairs v SGLB [2004] HCA 32, (2004) 207 ALR 12; Minister for Primary Industries & Energy v Austral Fisheries Pty Ltd (1993) 40 FCR 381; Moolarben Coal Mines Pty Ltd v Director-General, Department of Industry and Investment (NSW) (Agriculture Division) [2011] NSWLEC 191, (2011) 186 LGERA 342; Murrumbidgee Groundwater Preservation Association Inc v Minister for Natural Resources [2005] NSWCA 10, (2005) 138 LGERA 11; Murrumbidgee Groundwater Preservation Association v Minister for Natural Resources [2004] NSWLEC 122; NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 [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 2000 (No 2) [2011] NSWLEC 115; NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 (No 3) [2011] NSWLEC 171; NA &J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 (No 4) [2012] NSWLEC 120; Nature Conservation Council of New South Wales Inc v Minister Administering Water Management Act 2000 [2005] NSWCA 9, (2005) 137 LGERA 320; Notaras v Waverley Council [2007] NSWCA 333, (2007) 161 LGERA 230; Oates v Attorney-General for the Commonwealth of Australia [2001] FCA 84, (2001) 181 ALR 559; Onesteel Reinforcing Pty Ltd v Sutton [2012] NSWCA 282; Prasad v Minister for Immigration and Ethnic Affairs [1985] FCA 46, (1985) 6 FCR 155; Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28, (1998) 194 CLR 355; Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30, (2003) 198 ALR 59; Schroders Australia Property Management Ltd v Shoalhaven City Council [2001] NSWCA 74; Schroders Australia Property Management Ltd v Shoalhaven City Council [1999] NSWLEC 251, (1999) 110 LGERA 130; SZMYO v Minister for Immigration and Citizenship [2010] FMCA 963; Telstra Corporation Ltd v Australian Competition and Consumer Commission [2008] FCA 1436, (2008) 171 FCR 174; The Queen (on the application of Mavalon Care Ltd) v Pembrokeshire County Council [2011] EWHC 3371 (Admin); Tickner v Bropho (1993) 40 FCR 183; Tubbo Pty Ltd v Minister Administering the Water Management Act 2000 [2008] NSWCA 356; Vasiljkovic v Honourable Brendan O'Connor [2010] FCA 1246, (2010) 276 ALR 326; Videto v Minister for Immigration & Ethnic Affairs [1985] FCA 449, (1985) 8 FCR 167; Visa International Service Association v Reserve Bank of Australia [2003] FCA 977, (2003) 131 FCR 300; Waterford v The Commonwealth [1987] HCA 25, (1987) 163 CLR 54; Westfield Management Ltd v Perpetual Trustee Company Ltd [2006] NSWCA 245; Woolworths Ltd v Pallas Newco Pty Ltd [2004] NSWCA 422, (2004) 61 NSWLR 707
• Texts Cited: Pearce and Argument, "Delegated Legislation in Australia" (4th ed, 2012)
• Category: Principal judgment
• Parties: Alan Arnold & Ors (Applicants); Minister Administering the Water Management Act (First Respondent); State of New South Wales (Second Respondent)
• Representation: COUNSEL: F Corsaro SC and P E King for the Applicants; S Lloyd SC, J Hutton and J Lucy for the Respondents; SOLICITORS: Taylor & Whitty (Applicants); Crown Solicitor's Office (Respondents)
• File Number(s): 40049/97

Judgment

CONTENTS                                                                                                               Paragraphs

INTRODUCTION	1-12
HISTORY OF THESE PROCEEDINGS	13-16
EARLIER CHALLENGES TO VALIDITY OF OTHER WATER SHARING PLANS	17
BACKGROUND TO THE 2000 ACT, PLAN AND AMENDING REGULATION	18-66
The 1912 Act	18-19
The 1990s	20-24
2000-2001	25-30
2002-2003	31-33
2004	34-42
2005	43-58
2006	60-66
THE WATER MANAGEMENT ACT 2000	67-85
Preamble and objects	17-69
Water Management Principles	70
State Water Management Outcomes Plan	71-73
Duties: s 9	74
Groundwater Management Areas and Management Committees	75
Part 4 "Minister's Plan" or Part 3 "Management Plan"	76-82
Access licences	83-84
THE PLAN	86-104
Core Provisions	87
Applicable Area	88
Vision, objectives, strategies and performance indicators	89-90
Basis for water sharing	91-92
Storage component	93-94
Environmental water and basic landholder rights	95
Bulk access regime	96
Requirements for water for extraction under access licences: s 20(1)(c) 2000 Act	97
Rules for granting access licences	98
Extraction Limit	99-103
SWMOP targets	104
PRINCIPLES OF JUDICIAL REVIEW	105-118
ADMISSIBILITY OF EXPERT EVIDENCE IN JUDICIAL REVIEW PROCEEDINGS	119-139
THE SCIENCE ISSUE: THE PLAN'S EXTRACTION LIMIT OF 83,700 ML/YEAR	140-203
Hydrogeological reports prior to the Minister's 2006 decision to make the Plan	145-154
The expert evidence at the hearing	155-174
Ground 1: Mandatory Relevant Considerations	175-186
Ground 2: Mandatory Irrelevant Consideration	187-192
Ground 3: Irrationality or manifest unreasonableness	193-203
THE SOCIO-ECONOMIC ISSUE	204-229
THE FORM ISSUE	230-236
THE CONSTITUTIONAL ISSUE	237-240
CONCLUSION	241

INTRODUCTION

1 In Australia, water is a valuable, finite and fluctuating resource. Rights to use water are of critical importance not just to those who are interested in particular water entitlements but to society as a whole. Access to water requires sustainable and efficient management that balances environmental, economic and social considerations. In the case of groundwater, it has come to be accepted that use should be limited by the sustainable yield from the aquifer system. The objects of the Water Management Act 2000 (the 2000 Act) are to "provide for the sustainable and integrated management of the water sources of the State for the benefit of both present and future generations". The 2000 Act empowers the Minister to make water management plans, which are tools to implement the objects and water management principles set out in ss 3 and 5, including in relation to water sharing: s 15(1)(a). The Minister has made many water sharing plans including for the six major groundwater systems in New South Wales: the Lower Murray - with which these proceedings are concerned - the Lower Gwydir, the Lower Lachlan, the Lower Macquarie, the Upper and Lower Namoi and the Lower Murrumbidgee. The water sharing plans for the major groundwater systems greatly reduced entitlement to extract groundwater under licences to the level of the estimated sustainable yield of each system. This prompted unsuccessful legal challenges to the validity of a number of the water sharing plans for the major groundwater systems by those affected by the reductions. These proceedings are the latest legal challenge.

2 With effect from 1 November 2006, total long-term groundwater extraction entitlements from the Lower Murray Groundwater Source were reduced by 68 per cent in order to achieve an estimated sustainable yield. This was effected by the Water Sharing Plan for the Lower Murray Groundwater Source (the Plan) made by the respondent Minister under the 2000 Act, the consequential Water Management (General) Amendment (Lower Murray) Regulation 2006 (the Amending Regulation), and the extension by proclamation under s 55A of the 2000 Act of the access licence provisions of the 2000 Act to each water source to which the Lower Murray Groundwater Source applies and to all categories and subcategories of access licences in relation to any such water source. Borehole licences issued under Part 5 of the Water Act 1912 (the 1912 Act) (known as Part 5 entitlements) were replaced by aquifer access licences with much reduced entitlements and, in most cases, temporary supplementary water access licences issued under the 2000 Act.

3 In these proceedings about 113 farmers affected by the reductions in entitlements challenge the lawfulness of the Plan and the Amending Regulation. The respondents are the Minister who made the Plan and the State of New South Wales. The Amending Regulation has been replaced by the Water Management (General) Regulation 2011 (2011 Regulation), which substantially adopts the wording of the 2004 Regulation as amended by the amending regulation. It is common ground that if the Plan is invalid, so is the Amending Regulation and the 2011 Regulation.

4 The proceedings are not a review of the merits of the reduction in entitlements: the Court has no relevant merits review jurisdiction. The limited role of the Court is to determine the lawfulness of the Plan and, consequently, the Amending Regulation and the 2011 Regulation.

5 The Plan covers the water in the deep regional aquifers of the area described as the Lower Murray Groundwater Source shown in Schedule 2 of the Plan. In 2001 this area was declared a groundwater management area (GWMA 016) under s 11 of the 2000 Act. GWMA 016 is an area of some 17,900 square kilometres in south-western NSW and the eastern part of the Murray Geological Basin. This area is bounded on the south by the Murray River, on the north by Billabong Creek, on the east by the Corowa-Urana Road, and on the west by the confluence of the Wakool and Murray Rivers close to Tooleybuc. Its deep aquifers comprise the Calivil Formation and the Renmark Group, which extend to a depth of some 350 metres, and a relatively insignificant part (deeper than 12 metres) of the overlying Shepparton Formation. The waters of the shallow regional aquifer are covered by a separate water sharing plan made in 2012 under s 50 of the 2000 Act, the Water Sharing Plan for the Lower Murray Shallow Groundwater Source.

6 An understanding of the nature of water management plans under the 2000 Act is informed by the high level, political nature of the instruments with which they are required to be consistent; namely, "government policy" including the State Water Management Outcome Plan (which sets the overarching policy context, targets and strategic outcomes of the management of the State's water sources having regard to the broadest environmental, social and economic issues) as well as inter-governmental agreements and international agreements: s 6(2) and (3), s 16.

7 In making the Plan, the Minister was obliged to give priority to protection of the water source and, if there were any (which there were not), groundwater dependent ecosystems: ss 9(1)(b) and 5(3) of the 2000 Act. This is fortified by the objects in s 3(a) and (b) "to apply the principles of ecologically sustainable development", which include the precautionary principle, and "to protect, enhance and restore water sources".

8 The Plan is for a period of about 10 years and 8 months. Its principal provisions include the following:

 

(a) The extraction limit by the end of the Plan comprises the average annual recharge of 83,700 ML/year plus the requirements for "basic landholder rights" (defined in the 2000 Act as non-licence domestic and stock rights, harvestable rights or native title rights) estimated at 1,525 ML/year at the commencement of the Plan: cll 16, 21. The figure of 83,700 ML/year represents the sustainable yield: cll 11(b), 12(d), schedule 3 target 1e. It may be noted that that figure, which is based on a 2001 hydrogeological model by Ecoseal as adjusted by other hydrogeologists, represents a reduction in entitlements of about 68 per cent compared with total Part 5 entitlements of about 261,000 ML/year under the 1912 Act, but exceeds actual total water extraction in each of five of the preceding six years (the remaining year being drought -affected).

(b) The Plan's method of achieving sustainable use of groundwater was by a formula involving reductions in entitlements for aquifer access licence holders based principally on historical use of groundwater: cl 27. This history of use (also called history or extraction) method, which the applicants attack as inequitable, reflects a change in government policy from the method of across-the-board reductions in entitlements that the Minister had adopted in some earlier water sharing plans. Inevitably, each method creates different winners and losers. Those who could demonstrate a use of their entitlements within the relevant period were likely to be better off under a history of use formula than under a formula based on acrss-the-board cuts. Those who had entitlements that had not been used within the relevant period would be likely to be worse off: Murrumbidgee Groundwater Preservation Association Inc v Minister for Natural Resources [2005] NSWCA 10, (2005) 138 LGERA 11 at [144] per Spigelman CJ; Harvey and Tubbo Pty Ltd v Minister Administering the Water Management Act 2000; [2008] NSWLEC 165, (2008) 160 LGERA 50 at [64] per Jagot J.

(c) In order to smooth the transition to the lower level of entitlement, a formula was prescribed for calculating the share component of supplementary water access licences issued for a period of 8 years and 8 months and estimated to total 48,480 ML/year, reducing in volume over that period, to those licence holders whose history of use exceeded their entitlements under aquifer licences: cll 28, 29(3).

9 The Amending Regulation inserts into the Water Management (General) Regulation 2004 (the 2004 Regulation) a new Division 5 (cll 29F-29J) of Part 3 and a new Schedule 4B. The new cl 29G provides that borehole licences issued under Part 5 of the 1912 Act (called Part 5 entitlements) in relation to the Lower Murray are taken to have been replaced by aquifer access licences and supplementary water access licences under the 2000 Act in the amounts specified in Schedule 4B. Clause 29G(3) provides that the volumes specified in Schedule 4B had been calculated in accordance with the methodology set out in cll 27 and 28 of the Plan. Upon proclamation, the applicants' licences under Part 5 of the 1912 Act are "taken to have been replaced" by access licences under the 2000 Act: cl 3(l)(a)(ii) of Schedule 10 of the 2000 Act.

10 This scheme gave effect to a $110 million joint funding agreement entered into in 2005 between the State and the Commonwealth for a project called "Achieving Sustainable Groundwater Entitlement" (ASGE Agreement), which requires water extraction entitlements for the six major groundwater sources to be greatly reduced after 10 years to sustainable yield by a methodology that takes account of each licence holder's history of extraction. For the Lower Murray Groundwater Source the specified reduction is 167,000 ML (or 68 per cent) after 10 years. Although not referred to in the Plan, financial assistance to farmers and communities affected by the water extraction reductions was funded by the NSW and Australian governments under the ASGE Agreement, and has been offered by the NSW government on an ex gratia basis to eligible licence holders. This recognised that groundwater extraction entitlements under the 1912 Act, whether used or not, had a value represented in the value of the land. Consistently with the history of use approach, it attributes a greater value to active water than inactive water, as determined by independent valuations.

11 The pleaded grounds of invalidity of the Plan comprise the following four judicial review grounds with a host of sub-grounds, many of which were ultimately conflated or not pressed, and one Commonwealth constitutional ground (another pleaded ground concerning s 100 of the Commonwealth Constitution was not pressed). They are:

Judicial review grounds

(1) The Minister failed to have regard to mandatory relevant matters.

(2) The Minister had regard to a prohibited or mandatory irrelevant matter.

(3) Irrationality in reasoning and fact finding or manifest unreasonableness.

(4) The Plan failed to deal with mandated matters.

Constitutional ground

(5) The replacement of bore licences under the 1912 Act with aquifer access licences under the 2000 Act involved an acquisition of property other than on just terms within the meaning of s 51(xxxi) of the Commonwealth Constitution.

12 The judicial review grounds generally relate back to the objects of the 2000 Act in s 3, the water management principles in s 5, the core provisions in s 20, and the duties in s 9. The applicants' judicial review case falls into three parts. First, a science case which attacks the Plan's extraction limit of 83,700 ML/year primarily on the basis that it is derived from a hydrogeological model that is said to be so flawed that the Minister's adoption of that figure was irrational. Secondly, a socio-economic case that the Minister failed to have regard to mandatory socio-economic considerations because there was no formal socio-economic study or no regard to socio-economic considerations on a farm-by-farm basis. Thirdly, a form case that the Plan failed to deal with prescribed matters.

HISTORY OF THESE PROCEEDINGS

13 Although 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 this Court 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 2000 [2008] NSWCA 338, (2008) 73 NSWLR 196; Arnold v Minister Administering the Water Management Act 2000 [2010] HCA 3, (2010) 240 CLR 242. The High Court held that there had been no acquisition of the applicants' property within the meaning of s 51(xxxi) of the Constitution, applying ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51, (2009) 240 CLR 140 which concerned the same statutory scheme. Secondly, the High Court held that the reduction of entitlements in consequence of the Commonwealth entering into the funding ASGE agreement which led to the adoption of the Plan did not abridge the applicants' right to "the reasonable use of the waters of rivers" within the meaning of s 100 of the Constitution.

14 There followed three decisions of mine on matters between the applicants and the Commonwealth concerning costs and an unsuccessful charge by the applicants that the Commonwealth was in contempt of court: Arnold v Minister Administering the Water Management Act 2000 (No 2) [2009] NSWLEC 55; Arnold v Minister Administering the Water Management Act 2000 (No 3) [2009] NSWLEC 56, (2009) 165 LGERA 329; Arnold v Minister Administering the Water Management Act 2000 (No 4) [2009] NSWLEC 87.

15 Thereafter, in relation to the balance of the proceedings against the Minister and the State, this Court delivered four substantial interlocutory judgments which (among other things) struck out parts of the Points of Claim, reconstituted a claim under the Land Acquisition (Just Terms Compensation) Act 1991 (which could only arise, if at all, if these proceeding are unsuccessful) as a separate proceeding in Class 3 of the Court's jurisdiction, and made advance rulings on evidence, both 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 2000 [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 Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 (No 3) [2011] NSWLEC 171 (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 4) [2012] NSWLEC 120 (Biscoe J). The applicants abandoned their claims for compensation under the 2000 Act and for damages for conduct alleged to be unconstitutional: NA &J Investments (No 4) at [21]. The only damages claim which the applicants continue to press is based on the common law tort of conversion. The respondents deny that such a claim is pleaded. A consent order has been made that all issues concerning that claim will await determination of the applicants' challenge to the validity of the Plan and Amending Regulation since if that challenge fails the damages claim must also fail: NA&J (No 4) at [30].

16 During the hearing I ruled that a claim advanced by the applicants in their opening submissions of ineffectual cancellation of conjunctive use rights under the 1912 Act and consequential judicial review grounds, had not been properly pleaded and particularised and I declined to entertain it: Arnold v Minister Administering the Water Management Act 2000 (No 5) [2013] NSWLEC 42.

EARLIER CHALLENGES TO VALIDITY OF OTHER WATER SHARING PLANS

17 Earlier challenges to the validity of Minister's plans under s 50 of the 2000 Act relating to other major groundwater sources, which reduced water extraction entitlements under licences, were unsuccessful: Nature Conservation Council of New South Wales Inc v Minister Administering Water Management Act 2000 [2005] NSWCA 9, (2005) 137 LGERA 320, affirming Nature Conservation Council (NSW) Inc v Minister for Sustainable Natural Resources [2004] NSWLEC 33, (2004) 133 LGERA 168 (Talbot J); Murrumbidgee Groundwater Preservation Association Inc v Minister for Natural Resources [2005] NSWCA 10, (2005)138 LGERA 11, affirming Murrumbidgee Ground-Water Preservation Association v Minister for Natural Resources [2003] NSWLEC 322 (McClellan CJ); Tubbo Pty Ltd v Minister Administering the Water Management Act 2000 [2008] NSWCA 356, affirming Harvey and Tubbo Pty Ltd v Minister Administering Water Management Act 2000 [2008] NSWLEC 165, (2008) 160 LGERA 50 (Jagot J). Principles established by those decisions are relevant in the present proceedings.

BACKGROUND TO THE 2000 ACT, PLAN AND AMENDING REGULATION

The 1912 Act

18 The history of restriction of access to and use of water in New South Wales was addressed in ICM Agriculture Pty Ltd v Commonwealth [2009] HCA 51, (2009) 240 CLR 140. French CJ, Gummow and Crennan JJ said at [3]:

Successive governments of the State of New South Wales (the State) have long monitored, regulated and restricted access to and use of both groundwater and surface water. Policies have been formulated and pursued so as to achieve equitable access among water users, to mitigate adverse effects on the environment, and to ensure that water, as a finite and fluctuating natural resource, is able to be replenished for future use. The extraction and use of water has been regulated by statute since 1896, and, in particular, from 1912 principally by the Water Act 1912 (NSW) (the 1912 Act or the Water Act). The Water Management Act 2000 (NSW) (the 2000 Act) provided (s 401 and Sch 7) for the repeal of the 1912 Act. This litigation follows upon the replacement of the one statutory regime with the other.

19 Up until the Plan's commencement on 1 November 2006, access to groundwater in the Lower Murray was regulated under Part 5 of the 1912 Act. Part 5 established a licensing scheme for the sinking of bores and the taking and use of groundwater. Water was allocated on a "needs basis", with the maximum entitlement available under a licence calculated by reference to the total property area to which that licence attached. Hydrogeological assessment of water availability and bore density in the area were also taken into account when determining an application for a Part 5 licence. The applicants to these proceedings held bore licences under Part 5 entitling them to draw groundwater in a defined amount on a yearly basis.

The 1990s

20 In 1994 the Council of Australian Governments (COAG) established the Water Reform Framework. In the Water Reform Framework it was agreed that action needed to be taken to arrest natural resource degradation caused in part by water use. One of the key reforms was an agreement that would implement systems of water entitlements backed by separation of water property rights from land title, and the institution of trading arrangements. COAG also determined that management arrangements relating to groundwater be considered by the Agricultural and Resource Management Council of Australia and New Zealand (ARMCANZ), a Ministerial Council.

21 In 1996 ARMCANZ produced a document called "Allocation and Use of Groundwater: A National Framework for Improved Groundwater Management in Australia". One of its recommendations was that the States develop groundwater management plans which provide for water for the environment. It recommended that these "should be developed from an understanding of the relationship between sustainable yield, allocation and use on an aquifer basis, as a primary basis for management decision making".

22 In 1997 the State published "The NSW State Groundwater Policy Framework Document", which stated that it was "to manage the State's groundwater resources so that they can sustain environmental, social and economic uses for the people of NSW". It expressed concern about the declining condition of the State's water resources and over-exploitation of some aquifers. It provided that "Groundwater Management Plans will apply the goals and principles of the State Groundwater Policy at local level...[and] will be progressively developed across the State, with priority given to those aquifers most at risk or stressed". It said that plan formulation will normally require undertaking a number of initial studies, which it listed, including an assessment of storage and recharge.

23 In 1998 the Lower Murray Alluvium, an area which later was declared as GWMA 016 under s 11 of the 2000 Act, was identified as one of a number of "highest risk aquifers" in an "Aquifer Risk Assessment Report" undertaken by the Department of Land and Water Conservation (the Department) in collaboration with the Environment Protection Authority. The report stated that aquifers at high risk are to have priority management attention with groundwater management plans started immediately. Following this assessment, an embargo was imposed on the issue of new irrigation and industrial bore licences for a period of two years. According to a 1999 Status Report, a total of 287 licences were issued for the Lower Murray Alluvium, allocating 329,840ML of groundwater annually, of which 98.2 per cent was allocated to irrigation. While it had previously been thought that around 400,000ML of low salinity groundwater was available for extraction, more recent estimates of sustainable yield were in the vicinity of 140,000ML.

24 Around this time the NSW Government announced it would be setting up Groundwater Management Committees for high risk groundwater systems to develop groundwater management plans.

2000-2001

25 The 2000 Act commenced on 1 January 2001 but its access licensing provisions did not at that time apply to the Lower Murray Groundwater Source.

26 In 2000 the Murray Groundwater Management Committee (MGMC) was formed with representatives from various State government departments, the NSW Nature Conservation Council, local government, the local Aboriginal Land Councils, and groundwater users. The MGMC held its inaugural meeting in November 2000.

27 By letter dated 26 March 2001, the Minister designated the MGMC as an advisory committee, pursuant to s 388 of the 2000 Act, "for the purpose of preparing advice on recommendations for a water sharing plan for the Lower Murray groundwater system". Section 388 provides: "The Minister may establish advisory and other committees for the purposes of this Act". Initially, the Minister asked that the MGMC provide its final advice by August 2001 with a view to the Minister formally making the plan in December 2001. The timeframe for the MGMC's advice was subsequently extended on a number of occasions.

28 As part of its deliberations, the MGMC considered a broad range of matters including the recharge factor for GWMA 016, the level of sustainable yield, the amount of water that should be reserved for the environment, methodologies for reducing entitlements and measures that could be implemented to minimise the impact of entitlement reductions. The MGMC wished to depart from Government policy in place at that time, which was that the reduction in the amount of water to be available for extraction under water sharing plans would be shared proportionately amongst all licence holders "across-the-board" (that is, entitlements would be reduced by a uniform percentage for all licence holders). In a letter to the Minister in August 2001, the MGMC noted that the Department's estimated sustainable yield for the aquifer was considerably less than licensed entitlements and proposed an alternative methodology for reducing allocations that considered infrastructure capacity along with existing licensed entitlements. This proposal stalled, however, as it was considered inconsistent with the policy in place at that time.

29 In 2001 GWMA 016 was declared as a groundwater management area under s 11 of the 2000 Act.

30 In 2001 Ecoseal provided the Department with a numeric groundwater model which estimated the sustainable yield for the deep Calivil/Renmark aquifers as 66GL/year. Later that year a Department hydrogeologist, Mr Mike Williams, and a consultant hydrogeologist, Professor Prathapar, because of flaws in the Ecoseal model, adjusted the Ecoseal model for the MGMC and estimated that the maximum sustainable yield was 83.7GL/year (which they rounded to 84GL/year). This was the basis of the 2006 Plan's long-term extraction limit component of 83.7GL/year. Later, in 2002, Aquaterra identified further flaws in the Ecoseal model.

2002-2003

31 In 2002 the State Water Management Outcomes Plan (SWMOP) was established by order pursuant to s 6 of the 2000 Act. It is the duty of all persons involved in the administration of the Act to exercise their functions under the Act in a manner that gives effect to the SWMOP: s 9(2). A management plan must be consistent with the SWMOP: s 16(1)(a). The stated aim of the SWMOP is "to provide for the sustainable and integrated management of the water sources of the State for the benefit of both present and future generations". Among its five year management targets are the following:

Target 1: Limits on the total volume of water that can be extracted [in order, among other things, to maintain groundwater levels].

Target 1e: The long term average annual extractions for groundwater limited (or being phased down) to an ecologically sustainable level (the Sustainable Yield) as determined by detailed assessment of each groundwater source and consultation with the relevant management committee. In the absence of such an assessment, the following to apply: 100 percent of average annual recharge for a groundwater source where there is no significant ecosystem dependency; 70 percent of average annual recharge where there is significant ecosystem dependency.

Target 6a: For groundwater sources, the total volume of water specified on access licences reduced over the term of a water sharing plan to no more than 125 per cent of the Sustainable Yield.

Target 11: Groundwater dependent ecosystems identified and mapped for all priority aquifers, and the ecological water requirements assessed to enable local groundwater extraction rates and/or Sustainable Yields to be reviewed.

32 Target 1e, that long term average annual extractions are to be 100 per cent of average annual recharge for a groundwater source where there is no significant ecosystem dependency, applies only in the absence of detailed assessment of the water source. In the present case there was a detailed assessment of the groundwater source.

33 In June 2003 a draft plan was circulated among members of the MGMC with a view to providing it to the Minister for his consideration in July. However, also in June 2003, the Minister announced the deferral of implementation of water sharing plans in New South Wales until 1 January 2004. This deferral followed the Commonwealth's announcement of a national water plan, details of which were to be released at the COAG meeting in August of that year. Accordingly, the draft plan formulated by the MGMC was not forwarded to the Minister at that time, and the MGMC awaited further advice regarding revisions to government policy.

2004

34 In March 2004, State Cabinet decided to depart from its previous policy of equal "across-the-board" reductions in entitlements to groundwater, to an approach "tailored for each groundwater system that, where appropriate, recognises historical extraction." This revised approach was to be implemented as part of a State-wide Groundwater Assistance Program that would cover groundwater sharing plans for the six major groundwater systems.

35 On 25 June 2004 the Intergovernmental Agreement on a National Water Initiative was entered into by the governments of the Commonwealth, New South Wales, Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory. One of its objects was to "complete the return of all currently over-allocated or overused systems to environmentally-sustainable levels of extraction" (italics in original). It noted that governments have a responsibility "to ensure that water is allocated and used to achieve socially and economically beneficial outcomes in a manner that is environmentally sustainable". It noted the need "to ensure the health of river and groundwater systems by establishing clear pathways to return all systems to environmentally sustainable levels of extraction". The parties agreed to the establishment of a National Water Commission, to be responsible for providing advice to COAG on national water issues and to assist in the implementation of the agreement. It stated:

Recognising that settling the trade-offs between competing outcomes for water systems will involve judgments informed by the best available science, socio-economic analysis and community input, statutory water plans will be prepared for surface water and groundwater management units in which entitlements are issued.

36 On the same day, the Commonwealth, New South Wales, Victoria, South Australia and the Australian Capital Territory entered into the Intergovernmental Agreement on Addressing Water Overallocation and Achieving Environmental Objectives in the Murray-Darling Basin.

37 In August 2004 the Groundwater Adjustment Committee (GAC), formed by the NSW Government, held its inaugural meeting. The membership of the GAC comprised the Chairs of Catchment Management Authorities (CMAs), the Chief Executive of the NSW Irrigators Council, an Australian Government representative, the Director General of the Department and various Regional Directors and Directors of the Department. The GAC's terms of reference indicated that it would report to the Deputy Director of the Department and the Minister. Its stated objectives were "(a) to consider proposals for alternative entitlement reduction methods...and consequent changes to groundwater sharing plans; and (b) to review the details and processes for the new assistance package for over-allocated inland groundwater systems...". The six major groundwater systems under review were identified, including the Lower Murray. At the inaugural meeting of the GAC on 5 August 2004, it was indicated that the exercise would not be about amending the basic rules of the water sharing plans or sustainable yields but instead would focus on the revised entitlement methodology and assistance arrangements. The Chair advised that neither GAC nor CMA's were being asked to consult on whether history of use methodology should be used; that this would be a decision made by Governments; and that CMAs would be asked to consult with water users on the implementation of that decision and in particular consider anomalies and the need for an equivalent approach where history of use data was not readily available.

38 On 2 September 2004, the Minister announced in Parliament that, in view of the National Water Initiative, commencement of the six groundwater sharing plans had been suspended again until 1 July 2005 to:

allow time to rework the plans to have greater regard for history of use as well as to incorporate the work we have done with key rural community groups and the Commonwealth Government over the past year. Part of that work was the negotiations with the Commonwealth around a new financial assistance package to assist those half a dozen valleys to manage the historic overallocation to ensure that water is used within sustainable levels in the future.

39 By letter dated 10 September 2004, the Minister advised the Chair of the MGMC that the deferred commencement of the Plan until July 2005 would allow review of the policy of reducing entitlements "equally 'across the board', irrespective of historical extraction", as well as allow time for the formulation of a new financial assistance package, and for public consultation to be undertaken by the relevant Catchment Management Authorities. By letters dated 17 September to the Director-General of the Department and 8 October 2004 to the Minister, the Chair of the MGMC expressed his support for the government's review of the method of reducing groundwater entitlements.

40 On 13 September 2004 the Commonwealth announced a "Water Smart Australia" program involving the establishment of an "Australian Water Fund" from which funding would be available in order to advance the objectives of the National Water Initiative. Also on 13 September 2004, the Deputy Prime Minister announced that the Australian Government would assist the NSW Government financially in relation to "structural adjustment for historically over-allocated groundwater systems".

41 In a letter of 8 October 2004 to the Minister, the Chair of the Murray GMC wrote:

 

(a) The aquifer for GMWA016 has an estimated sustainable yield of 83,700 ML/year and a current licence entitlement (under the 1912 Act) of about 260,934 ML. On this basis the aquifer was rated as highly stressed, yet groundwater usage since metering commenced in 1999 has only exceeded estimated sustainable yield in one year. The average use for the past five years was 79,000 ML/year.

(b) Water extraction from the Lower Murray Alluvium must be maintained at about estimated sustainable yield.

(c) The new proposed method for weighting history of use differently from unused entitlement is very appropriate for the Murray groundwater region and has been endorsed by the Murray GMC.

(d) He expected that if the State were to adopt a pro-rata reduction in groundwater entitlement, any plan produced by the Murray GMC would not have community support and would be challenged in court.

42 On 17 December 2004 the National Water Commission Act 2004 (Cth) commenced. The Act created a National Water Commission. One of the Commission's functions was to assist in the implementation of the National Water Initiative.

2005

43 In early 2005 the NSW Premier forwarded to the Prime Minister a funding proposal titled "Achieving Sustainable Groundwater Entitlements". It noted that it sought to address concerns that the previously proposed reduction methodology did not achieve sufficient socially and economically beneficial outcomes, and that consideration of history of use should be included in groundwater entitlement reductions.

44 On 9 June 2005 the Prime Minister announced the Achieving Sustainable Groundwater Entitlements (ASGE) project relating to the six major groundwater systems in NSW, including the Lower Murray. The announcement was that the Commonwealth and NSW governments would each provide $55 million to:

assist groundwater licence holders and their communities adjust to reductions in their water access entitlements. The entitlement reductions, which will be phased in over ten years, will lead to sustainable levels of groundwater extraction and, in turn, contribute to the achievement of outcomes of the National Water Initiative.

45 In or around July 2005 the GAC was re-formed as the Groundwater Adjustment Advisory Committee (GAAC), with the objectives of considering proposals for alternative methods for reducing groundwater entitlements giving consideration to "history of extraction" (and consequent changes to groundwater sharing plans), and to review the details under review, including the Lower Murray. The Chair of the MGMC and the Chair of the Murray CMA were both members of the GAAC.

46 The Groundwater Adjustment Officials Committee (GAOC) was also established in or around July 2005 comprising representatives of the State and Commonwealth, to provide for "joint NSW-Australian Government administration and decision making in respect of the jointly-funded NSW Groundwater Adjustment and Assistance Project".

47 A Department briefing note to the Minister in August 2005 noted in relation to groundwater entitlements reduction that current water sharing plans have equal proportional entitlement reductions but that the Government's amended methodology includes:

• Where possible, recognise water-dependent investment made by entitlement holders
• Ensure fairness, by recognising that all groundwater entitlements, whether extracted or not, have assumed a "value", represented in the value of the land to which the entitlement belongs.

48 As touched upon above at [10], on 4 November 2005 a $110 million joint funding agreement (ASGE Agreement) for a project called "Achieving Sustainable Groundwater Entitlement" was executed by the Commonwealth and New South Wales. The Commonwealth agreed to pay New South Wales $55 million. In return, New South Wales promised to fulfil the goals of the National Water Initiative, to implement Water Sharing Plans which greatly reduced the entitlements of water licence holders in respect of the six major groundwater systems, and to convert bore licences under the 1912 Act to aquifer access licences under the 2000 Act. The ASGE Agreement provides for the establishment of the following bodies:

 

(a) The Groundwater Adjustment Officials Committee (GAOC) to consider advice from the Groundwater Adjustment Advisory Committee (GAAC) and provide recommendations to the Prime Minister and NSW Premier regarding reductions in licence holders' entitlements, provision of structural adjustment payments to those licence holders, the guidelines and eligibility criteria for the community development funding, and the award of that funding. The GAOC comprises two senior officials of the NSW government and two National Water Commission representatives.

(b) The GAAC to provide advice to the GAOC. The GAAC comprises representatives of both governments, chairs of the Catchment Management Authorities of the six affected catchments and at least two representatives of the irrigation industry.

(c) The Groundwater Working Group, comprising government officials, to provide technical support to the GAAC regarding the achievement of sustainable groundwater entitlements.

49 The ASGE Agreement provides in clauses 1.6, 1.7 and 1.8 of its Schedule (emphasis added):

Project Overview

1.6 The Project requires the State to:

a. implement, from 1 July 2006, Water Sharing Plans (as provided for in the Water Management Act 2000 (NSW)) that reduce (over a 10 year period) the water entitlements of water licence holders in the Lower Gwydir, the Lower Lachlan, the Lower Macquarie, the [L]ower Murray, the Lower Murrumbidgee and the Upper and Lower Namoi groundwater systems (all of which are referred to in this Schedule as 'the Groundwater Systems') to ensure sustainable future use of those Groundwater Systems;

b. ensure that after sufficient consultation with licence holders and other stakeholders, the Water Sharing Plans for the Groundwater Systems include a method for reducing entitlements to sustainable yield and take account of, among other things, each licence holders' history of extraction of the relevant Groundwater System;

c. make up-front ex gratia structural adjustment payments to licence holders of the Groundwater Systems to allow them to better manage the transition to reduced and sustainable water entitlements; and

d. establish and administer a Community Development Fund.

Objectives

1.7 The Objectives of the Project are to:

a. reduce the level of licence holders water entitlements to the Groundwater Systems in order to achieve long-term sustainable water use of the Groundwater Systems; and

b. assist communities located in the Groundwater Systems' catchments by funding projects conducted by local industry that improve the local infrastructure and strengthen the local economy.

Project Activities

1.8 The Project requires the State to undertake the following activities to the Commonwealth's satisfaction, including all actions that are incidental to the achievement of the following:

Development of Groundwater Entitlement Reduction Methodology and Provision of Structural Adjustment Payments

a. The State agrees to manage the Project, including the process for determining the reduction in licence holders' water entitlements in the Groundwater Systems and the making of structural adjustment payments;

b. The State is responsible for determining:

     A.  the history of water extraction for all licence holders in each Groundwater System;

     B. the proportion of water entitlement referred to as 'inactive' water for all licence holders in the Groundwater Systems; and

     C. the value of 'active' and 'inactive' water for each Groundwater System;

c. The State agrees to obtain an independent, fair and reasonable valuation for tradeable 'active' water for each Groundwater System;

d. The State agrees to conduct open and transparent consultations with all licence holders of the Groundwater Systems regarding:

     A. the process for amending or developing the relevant Water Sharing Plan;

     B. the methodologies (including the history of extraction methodology) to be used to determine the reductions of water entitlements and the structural adjustment payments relating to the Groundwater Systems;

e. After the State has conducted the consultation referred to in paragraph d. the State agrees to develop a proposed methodology for reducing water entitlements to the Groundwater Systems that takes into account a licence holder's historical extraction of water from the relevant Groundwater System(s), and achieves after 10-years the following overall reductions in water entitlements in respect of each of the Groundwater Systems:    

     A. A reduction of 37,809 ML (or 57%) in the Lower Gwydir

     B. A reduction of 119,417 ML (or 56%) in the Lower Lachlan;

     C. A reduction of 70,303 ML (or 56%) in the Lower Macquarie;

     D. A reduction of 167,000 ML (or 68%) in the Lower Murray;

     E A reduction of 252,233 ML (or 49%) in the Lower Murrumbidgee; and

     F. A reduction of 271,700 ML (or 62%) in the Upper and Lower Namoi.

f. The State agrees that the GAAC and the GAOC must review the methodology for reducing licence holders' water entitlements for the Groundwater Systems and that the initial methodology used to establish the entitlement reduction must be agreed to by the Prime Minister and the NSW Premier.

g. The State agrees to develop a package of upfront ex gratia structural adjustment payments to licence holders of Groundwater Systems for the purpose of assisting those licence holders manage the impact of their reduced water entitlements. The State acknowledges that GAAC and GAOC must review the methodology for the making of structural adjustment payments to licence holders. The State agrees that the methodology used to establish the bulk structural adjustment required for each water source must be approved by the Prime Minister and the NSW Premier.

h. The State agrees that in reviewing the reduction in entitlement and structural adjustment methodologies, the GAAC and the GAOC may require the State to provide further information regarding, or recommend changes to, the methodologies the State has developed. Both parties acknowledge that the GAAC or the GAOC cannot change the total entitlement available for distribution nor the total amount of structural adjustment payments available (being $100 million).

i. The State agrees to convert all water licences in the Groundwater Systems to licences under the Water Management Act 2000;

j. The State agrees to gazette new or amended Water Sharing Plans for the Groundwater Systems that:

     A. commence on 1 July 2006;

     B. implement the water entitlement reduction methodology for the Groundwater Systems approved by the NSW Minister for Natural Resources (which is consistent with the methodology approved by the Prime Minister and the NSW Premier); and

     C. provide for the structural adjustment payments to adversely affected licence holders of the Groundwater Systems as approved by the Prime Minister and the NSW Premier.

50 Clause 5.1 refers to the State's agreement to carry out the project. Clause 4.1 deals with the Commonwealth's provision of funding for the project and Item 2 of the Schedule sets out in detail the financial contribution of the Commonwealth.

51 It can be seen that the ASGE Agreement contemplates a methodology for reducing water entitlements that takes into account a licence holder's historical extraction of water (cll 1.6 b, 1.8 b, d and e of the schedule) and has three major elements:

 

(a) to achieve sustainable yield by reducing extraction entitlements under water extraction licences. It introduces weighting for prior groundwater extractions by dividing all existing entitlements into two components: "active water" based on history of extraction from representative years (a measure of past use of groundwater) and "inactive water" (i.e. non-developed water);

(b) upfront financial assistance to help eligible licence holders adjust to changes in groundwater access over the initial ten years of a water sharing plan; and

(c) a community development fund to strengthen communities' economic and social capacity to adjust to structural change in the regions affected.

52 By recognising history of extraction, the ASGE Agreement replaces the earlier approach in water sharing plans to reduce all groundwater entitlements in over-allocated groundwater sources equally, that is, by across-the-board cuts.

53 The level of financial assistance provided under the ASGE Agreement is two thirds of the loss in value of water assets up to a maximum of $100 million for the six major groundwater sources. As at January 2006, valuations indicated that the loss in value of the water assets for those sources was $132.758 million; therefore, the total level of financial assistance was $88.505 million. Of the latter sum, $5.915 million related to the Lower Murray. The levels of financial assistance for each groundwater valley were provided to the CMAs for their use to facilitate consultation with licence holders before the water sharing plans were finalised.

54 Towards the end of 2005 preparation began for implementation of a water sharing plan for the Lower Murray as part of the ASGE project. In December 2005, the Department wrote to all Part 5 licence holders in the Lower Murray to advise about the ASGE program. The letter explained that the ASGE program aimed to reduce extractions to the sustainable yield of groundwater components and that it had three components:

• reducing entitlements with the introduction of 'weighting' for prior groundwater extraction. It also recognises that all groundwater entitlements, whether extracted or not, have a 'value' represented in the value of the land to which the entitlement belongs;
• providing financial assistance in the first year of the water sharing plan to help eligible licence holders adjust to changes in groundwater access over the initial ten years of the water sharing plan; and
• a Community Development Fund to strengthen communities' economic and social capacity in the affected regions.

55 This letter explained that the introduction of the ASGE program would affect licence holders in two ways: first, with the implementation of the water sharing plan, and, secondly, with the resulting conversion of groundwater licences under the 1912 Act to access licences under the 2000 Act.

56 A brochure enclosed with the letter explained:

 

(a) The level of entitlement and usage from some NSW groundwater sources exceeded sustainable yield and had to be reduced in order to achieve long-term sustainability.

(b) The NSW and Australian governments had jointly invested $110 million in a new program, the ASGE program, announced in June 2005, to ensure that the six major groundwater systems in NSW are sustainable in the long term. Those governments were offering financial assistance to eligible licence holders to help them adjust to the changes.

(c) The estimated annual recharge had been calculated for each of the major groundwater systems in NSW. Recharge is the total volume of water that enters the groundwater system each year.

(d) The proportion of the recharge which can be extracted each year having considered the socio-economic, environmental factors and the long-term sustainability of the resource is the sustainable yield.

(e) The ASGE program has four main components:

(i) the reduction of water entitlements based on historical extraction;

(ii) a financial assistance package for licence holders of up to $100 million;

(iii) a Community Development Fund of up to $9 million to help strengthen communities;

(iv) up to $1 million for the implementation of the ASGE program including the costs for valuations and consultation.

(f) The ASGE program is related to Water Sharing Plans. The Plans specify the management rules that will apply to each groundwater source over ten years. The Plans have been tailored for individual groundwater sources and consider the needs of water user, local communities and the environment. The Plans set out details for how entitlements in the groundwater source will be reduced to the sustainable yield. Each Water Sharing Plan will be amended to include the changes resulting from consultation with the Local Catchment Management Authority. However the sustainable yield currently gazetted in the Water Sharing Plans will not be amended as part of this program. Water sharing plans for other regions have been gazetted. The Lower Murray Plan is in draft but will be finalised for public exhibition, to enable commencement on 1 July 2006. Within the Water Sharing Plans and in conjunction with the ASGE program, the level of entitlements will be reduced to equal the sustainable yield. The available extraction will be gradually reduced from current levels to the sustainable yield over the ten years of the Plan.

(g) The key principles for the ASGE program included the principle that, where possible, the methodology recognise water-dependent investment made by licence holders.

(h) CMAs will facilitate consultation with affected groundwater licence holders in relation to implementation of the ASGE program, including "valley-specific processes for the reduction of access to groundwater". Reductions based on history of extraction replaces the approach in the current water sharing plans that reduced entitlements "across the board". Where users wished to use an alternative model, the relevant CMA would need to submit the proposal to the Department for approval. The alternative proposal will then be tested against the ASGE program's principles, with the level of support by licence holders being taken into account. The proposal must be able to be carried out within the program's overall timeframe. The history of extraction process would be the default process for entitlement reduction.

57 Attached to the 21 December 2005 letter was an "ASGE Program Groundwater Extraction Confirmation Form" for each licence holder, setting out the Department's record of the licence holder's metered extraction. The form allowed licence holders to identify discrepancies between their own and the Department's records, and to advise the Department of any such discrepancies by return of the form by 1 March 2006. Where a returned form indicated a disagreement with the Department's figures, the Department conducted an internal review of its records and the licence holder's claims.

58 A Regional Groundwater Verification Committee (RGVC) was established for the Lower Murray (separate Committees were established for each water management system forming part of the ASGE program), constituted by representatives of the Murray CMA, the NSW Irrigators Council and the Department. The RGVC considered those cases where licence holders were not satisfied with the Department's determination of their history of extraction following internal review. The RGVC reviewed history of use-related appeals against the Department's figures by reference to the "Definitions and Rules for History of Extraction" for the Lower Murray Groundwater Source. According to the RGVC's report to the GAAC, a total of seventy-five licence-holders in the Lower Murray initially returned their history of use confirmation forms indicating disagreement with the Department's records. Following the Department's internal review, thirty-seven of these cases were referred to the RGVC for its consideration.

59 From late 2005 to about April 2006, the Murray CMA consulted with licence holders regarding implementation of the ASGE program. As part of this process, the Murray CMA formed an Advisory Group of licence holders to assist in identifying, developing and assessing options for reducing entitlements and providing financial assistance and access to supplementary licences. The Advisory Group was also to assist in the identification and development of projects to assist other parts of the community affected by entitlement reductions. The Murray CMA also conducted a series of public meetings and issued a number of discussion papers and information bulletins over this period to explain different elements of the ASGE program and the matters that were open to consultation.

2006

60 An information bulletin of 3 February 2006 explained that the Murray CMA had capacity to influence issues of how available water was to be shared, how available financial assistance was to be shared, and the timeframe available for licence holders to adjust to reduced water availability through supplementary water access licences. Matters outside the CMA's influence included the calculation of sustainable yield, water quality management, the total amount of financial assistance available, the time of payment of financial assistance, taxation of financial assistance, and the timing of entitlement reductions.

61 On 9 March 2006 a Department briefing to the Minister recommended, and the Minister later accepted, that the draft Plan and supporting package be approved for public exhibition. One of the documents prepared for public exhibition was a guide to the draft Plan, which included the following:

The basis for determining how water is to be shared in a groundwater source is the average annual recharge. The average annual recharge is the volume added to the groundwater source, usually by infiltration from rainfall and river flows, over a long-term average basis. An average figure is used as climate and the level of recharge to a groundwater source varies from year to year.

To ensure that long-term damage to the aquifer is not caused, it is essential that groundwater extractions do not exceed the average annual recharge. The average annual recharge for the Lower Murray groundwater source is assessed at 83,700 megalitres per year (ML/yr).

With total entitlements currently equalling over 262,000 ML/yr, the Lower Murray groundwater source is classified as a high risk of over-extraction. If everyone extracted water to the level of their licensed entitlement, there would not be enough water for all existing water users and to protect the groundwater source in the medium-to long-term.

Further studies of the recharge will be undertaken in the first half of the plan term, and the recharge figures may be varied from year 5 of the plan.

...

Except for basic landholder rights, all other water extraction must be authorised under a water access licence. Currently entitlement in the Lower Murray groundwater source for the water users who will receive a water access licence under this Plan totals in excess of 262,000 ML/yr. This water is mainly used for irrigation, but there are also licences for industrial uses such as commercial feedlots. There are approximately 183 licence holders who will be issued with general licences known as aquifer access licences. Rather than as a volume, aquifer access licences will be issued with a share component expressed as a unit share in the water available each year.

In addition to this volume, there are 88 ML/yr allocated for water supply to the towns within the Shire of Conargo. This shire will be issued with a local water utility access licence with an equivalent volume share component.

The current level of entitlements in this groundwater source exceeds the average annual recharge or sustainable yield by approximately 70%. Total entitlements are in excess of 262,000, and the sustainable yield of the system is 83,700 ML/year.

However, in most years, water extraction has been significantly less than entitlement. This is because most groundwater pumpers have not activated or used all of their entitlement. The average extraction over the past 6 years was 79,000 ML. The last 6 years of record are presented in the table and chart below, and it can be seen that during this period the system was only over-extracted on one occasion, which correlates with a major drought year. The nature of aquifer systems with a large storage volume allows for years of extraction above the sustainable yield provided that the long term average extraction is equal to the sustainable yield.

...

To ensure the long-term sustainability of groundwater resources, the Government's policy is to bring entitlements into line with sustainable yield through the provisions of the water sharing plan. This will not only protect the aquifer but ensure that entitlements properly reflect the water that is available for extraction.

Because of the extent of over-allocation, the draft plan proposes that entitlements (ie the share component) for all aquifer access licences be reduced from the first day of the water sharing plan.

62 The guide to the draft Plan also stated:

In recognition of the impacts of entitlement reductions on other aquifer access licence holders, particularly those that have developed their business and historically used a high proportion of their entitlement, the following measures will be introduced to assist adjustment:

1. The entitlement reduction method will give a higher weighting to the proportion of a licence holders' active entitlement (that is the proportion of the entitlement that has been extracted in the past).

2. Financial assistance under the Achieving Sustainable Groundwater Entitlements Program will be provided to licence holders who are affected by entitlement reductions.

3. Supplementary water access licences will also be granted to licence holders who have a history of extraction greater than their amended entitlement or share component on their aquifer access licence. Supplementary licences will be issued for a volume equivalent to the difference between these two numbers (ie history of extraction and amended share component). Supplementary licences will be withdrawn over the term of the plan.

...

To assist highly developed water users to adjust, supplementary water access licences will be issued to those with a history of use greater than their amended share component of their aquifer access licence. There is likely to be between 90 and 100 licence holders who will receive a supplementary water access licence in addition to their aquifer access licence. These supplementary licences will have a total share component equivalent to about 20,000 ML. The final number of supplementary licence holders and volume of water under supplementary licence will be dependent on the final CMA recommendations on the weightings for active and inactive entitlement.

Supplementary licences, however, are only a temporary measure. Over the term of the Plan, the water available under supplementary water access licences will be reduced until these licences no longer exist.

63 As part of the consultation process, the Murray CMA developed a model for sharing available water under the Plan, with a weighting of 78 per cent of sustainable yield being allocated to the "active portions" of licences (that is, those portions which were being used to extract water), and 22 per cent to be shared amongst the "inactive" portions. For individual licence holders, this meant that approximately 54 per cent of the active component of their licences and 15 per cent of their inactive component were retained. The model also distinguished between low, middle and high percentage users, with this classification then impacting on the level of financial assistance to be provided, and the amount of water entitlements allocated under the supplementary water access licence. This model was presented to licence holders at meetings on 9 and 10 March 2006 and 10 -13 April 2006, and formed the basis of the Murray CMA's report and recommendations to the GAAC forwarded on 19 May 2006. The Murray CMA recommended this locally derived model as "shar[ing] the burden of entitlement reduction as equitably as possible among all licence holders and reflect[ing] the best mix of provisions given the nature of the adjustment program". The Murray CMA's recommendations were subsequently passed on to the Minister for his consideration.

64 On 6 June 2006 the Department made a recommendation to the Minister that he sign an attached letter to Ms Kay Hull MP, which referred as follows to the reduction in entitlements that considered history of extraction rather than across-the-board cuts:

The reduction in entitlements that considers history of extraction (HOE) replaces the "across-the-board" cuts approach which reduced entitlements with no consideration of dependence on extraction or the level of investment in irrigation development. It was after consultation with irrigators that the current approach was agreed to minimise potential impacts on rural communities.

Throughout the development and implementation of the ASGE program, both the department and CMAs have received representations from users with a low HOE, seeking a return to "across-the-board" cuts. This would generally provide users with a low HOE with a higher revised entitlement than they would receive under the agreed process and reduce the revised entitlement of those with a greater dependence on the use of groundwater. The NSW Government does not consider this equitable.

Licence holders were requested to confirm their HOE with the department. Many used this as an opportunity to present their case as a "late developer" or to highlight special circumstances. Despite your comments to the contrary, these submissions have been examined by the department and by regional groundwater verification committees.

65 Between 9 April 2006 and 19 May 2006, the draft Plan for the Lower Murray was exhibited in various public places and published on the Department's website. Submissions from the public were received. The MGMC convened on 22-23 June 2006 to consider submissions about the draft Plan and to make recommendations to the Minister. The MGMC sent its final recommendations to the Minister on 24 July 2006. The Chair of the MGMC sent a further letter to the Minister on or around 15 September 2006 regarding the need to limit changes to the sustainable yield available for extraction as entitlements over the life of the Plan.

66 On 20 October 2006, the Plan was published in the Government Gazette and it commenced on 1 November 2006. The Plan formed part of an integrated scheme that came into effect on 1 November 2006, as mentioned above at [2].

THE WATER MANAGEMENT ACT 2000

67 The grounds of judicial review are largely reliant on the objects of the 2000 Act in s 3, the water management principles in s 5, the duty in relation to the water management principles imposed by s 9 on all persons (including the Minister) exercising functions under the Act, and the core provisions in s 20. References in this judgment to the 2000 Act are to its provisions as they were when the Plan was made in 2006. Since then the 2000 Act has been amended.

Preamble and objects

68 The preamble to the 2000 Act says that it is an "Act to provide for the protection, conservation and ecologically sustainable development of the water sources of the State, and for other purposes".

69 Section 3 sets out the objects of the Act (emphasis added):

3 Objects

The objects of this Act are to provide for the sustainable and integrated management of the water sources of the State for the benefit of both present and future generations and, in particular:

(a) to apply the principles of ecologically sustainable development, and

(b) to protect, enhance and restore water sources, their associated ecosystems, ecological processes and biological diversity and their water quality, and

(c) to recognise and foster the significant social and economic benefits to the State that result from the sustainable and efficient use of water, including:

     (i) benefits to the environment, and

     (ii) benefits to urban communities, agriculture, fisheries, industry and recreation, and

     (iii) benefits to culture and heritage, and

     (iv) benefits to the Aboriginal people in relation to their spiritual, social, customary and economic use of land and water,

(d) to recognise the role of the community, as a partner with government, in resolving issues relating to the management of water sources,

(e) to provide for the orderly, efficient and equitable sharing of water from water sources,

(f) to integrate the management of water sources with the management of other aspects of the environment, including the land, its soil, its native vegetation and its native fauna,

(g) to encourage the sharing of responsibility for the sustainable and efficient use of water between the Government and water users,

(h) to encourage best practice in the management and use of water.

70 The "principles of ecologically sustainable development" referred to in s 3(a) are defined in the Dictionary to the 2000 Act by reference to the familiar s 6(2) of the Protection of the Environment Administration Act 1991. The s 6(2) definition nominates the precautionary principle, inter-generational equity, conservation of biological diversity and ecological integrity, and improved valuation, pricing and incentive mechanisms (each as explained in the statutory definition) as principles and programs through which the effective integration of economic and environmental considerations in the decision-making process can be achieved. The statutory definition is in the following terms:

(2) ...ecologically sustainable development requires the effective integration of economic and environmental considerations in decision-making processes. Ecologically sustainable development can be achieved through the implementation of the following principles and programs:

(a) the precautionary principle-namely, that if there are threats of serious or irreversible environmental damage, lack of full scientific certainty should not be used as a reason for postponing measures to prevent environmental degradation.

In the application of the precautionary principle, public and private decisions should be guided by:

     (i) careful evaluation to avoid, wherever practicable, serious or irreversible damage to the environment, and

     (ii) an assessment of the risk-weighted consequences of various options,

(b) inter-generational equity-namely, that the present generation should ensure that the health, diversity and productivity of the environment are maintained or enhanced for the benefit of future generations,

(c) conservation of biological diversity and ecological integrity-namely, that conservation of biological diversity and ecological integrity should be a fundamental consideration,

(d) improved valuation, pricing and incentive mechanisms-namely, that environmental factors should be included in the valuation of assets and services, such as:

     (i) polluter pays-that is, those who generate pollution and waste should bear the cost of containment, avoidance or abatement,

     (ii) the users of goods and services should pay prices based on the full life cycle of costs of providing goods and services, including the use of natural resources and assets and the ultimate disposal of any waste,

    (iii) environmental goals, having been established, should be pursued in the most cost effective way, by establishing incentive structures, including market mechanisms, that enable those best placed to maximise benefits or minimise costs to develop their own solutions and responses to environmental problems.

Water Management Principles

71 Chapter 2 (ss 5-51) of the 2000 Act is titled "Water management planning". Section 5 sets out the following water management principles of the Act and provides in part (emphasis added):

5 Water management principles

(1) The principles set out in this section are the water management principles of this Act.

(2) Generally:

(a) water sources, floodplains and dependent ecosystems (including groundwater and wetlands) should be protected and restored and, where possible, land should not be degraded, and

(b) habitats, animals and plants that benefit from water or are potentially affected by managed activities should be protected and (in the case of habitats) restored, and

(c) the water quality of all water sources should be protected and, wherever possible, enhanced, and

(d) the cumulative impacts of water management licences and approvals and other activities on water sources and their dependent ecosystems, should be considered and minimised, and

(e) geographical and other features of indigenous significance should be protected, and

(f) geographical and other features of major cultural, heritage or spiritual significance should be protected, and

(g) the social and economic benefits to the community should be maximised, and

(h) the principles of adaptive management should be applied, which should be responsive to monitoring and improvements in understanding of ecological water requirements.

(3) In relation to water sharing:

(a) sharing of water from a water source must protect the water source and its dependent ecosystems, and

(b) sharing of water from a water source must protect basic landholder rights, and

(c) sharing or extraction of water under any other right must not prejudice the principles set out in paragraphs (a) and (b).

(4) In relation to water use:

(a) water use should avoid or minimise land degradation, including soil erosion, compaction, geomorphic instability, contamination, acidity, waterlogging, decline of native vegetation or, where appropriate, salinity and, where possible, land should be rehabilitated, and

(b) water use should be consistent with the maintenance of productivity of land in the long term and should maximise the social and economic benefits to the community, and

(c) the impacts of water use on other water users should be avoided or minimised.

...

72 Section 5(3)(b) refers to "basic landholder rights", which the Dictionary to the Act defines as "domestic and stock rights, harvestable rights or native title rights". These are rights for which no access licence is required: ss 52, 53, 55.

State Water Management Outcomes Plan

73 Division 2 (ss 6-8) of Part 1 of Chapter 2 is titled "State Water Management Outcomes Plan and water sources classification". Section 6 provides for the establishment, by order, of a State Water Management Outcomes Plan (SWMOP) for "the development, conservation, management and control of the State's water resources in furtherance of the objects of this Act". The objects of a SWMOP are: "to set the over-arching policy context, targets and strategic outcomes for the management of the State's water sources, having regard to [among other things]...relevant environmental, social and economic considerations": s 6(2)(a). A SWMOP "must be consistent with...government obligations arising under any inter-governmental agreement...and...government policy...": s 6(3)(a) and (c). As mentioned above at [31], a SWMOP was made in 2002.

74 Section 8(1A) provides that a management plan is to commit water as "planned environmental water", which is defined as including "water that is committed by management plans for fundamental ecosystem health or other specified environmental purposes...and that cannot to the extent committed be taken or used for any other purpose": s 8(1)(a).

Duties: s 9

75 Section 9(1) imposes duties in relation to the s 5 water management principles on all persons exercising functions under the Act and in relation to a SWMOP:

9 Act to be administered in accordance with water management principles and State Water Management Outcomes Plan

(1) It is the duty of all persons exercising functions under this Act:

(a) to take all reasonable steps to do so in accordance with, and so as to promote, the water management principles of this Act, and

(b) as between the principles for water sharing set out in section 5 (3), to give priority to those principles in the order in which they are set out in that subsection.

(2) It is the duty of all persons involved in the administration of this Act to exercise their functions under this Act in a manner that gives effect to the State Water Management Outcomes Plan.

Groundwater Management Areas and Management Committees

76 Part 2 (ss 11-14) of Chapter 2 is titled "Management committees". Sections 11 and 12 empower the Minister to constitute any land as a water management area and to establish a water management committee to carry out a specific task in relation to water management in a water management area. The task for which a management committee is appointed may include preparation of a draft management plan for the whole or any part of the management area or of the water sources in the area: s 14(2)(a). As mentioned above at [29], in 2001 GWMA 016 was declared a water management area under s 11.

Part 4 "Minister's Plan" or Part 3 "Management Plan"

77 The Minister is empowered (but not obliged) to make a "management plan" under Part 3 (ss 15-49) or a "Minister's plan" under Part 4 (s 50) of Chapter 2 for any water management area or water source. As noted earlier at [2], in 2006 the Minister made a Minister's plan under Part 4 in relation to the Lower Murray groundwater source. Slightly confusingly, the Dictionary to the Act in effect defines "management plan" as both a Part 3 management plan and a Part 4 Minister's plan.

78 Section 50 provides:

50 Minister's plan

(1) The Minister may, by order published in the Gazette, make a plan (a Minister's plan):

(a) for any part of the State that is not within a water management area, or

(b) for any water management area or water source, or part of a water management area or water source, for which a management plan is not in force, or

(c) for any water management area or water source, or part of a water management area or water source, for which a management plan is in force, but only so as to deal with matters not dealt with by the management plan.

(1A) A Minister's plan may be made for more than one water management area or water source or for parts of more than one water management area or water source.

(2) A Minister's plan must in general terms deal with any matters that a management plan is required to deal with, and may also deal with any other matters that a management plan is authorised to deal with, other than matters that are already dealt with by a management plan.

(2A) Part 3 (except sections 15 and 36-41) applies to a Minister's plan. However, the Minister:

(a) may adopt any of the provisions of sections 36-41 in a particular case, and

(b) may dispense with a particular requirement of Part 3 in the case of a Minister's plan referred to in subsection (1A).

...

(4) Except to the extent to which this Act otherwise provides, a Minister's plan has the same effect as a management plan.

...

79 A Minister's power to make a Minister's plan under Part 4 (s 50) is less confined in two respects than the Minister's power to make a management plan under Part 3. First, due to the words "in general terms" in s 50(2), a "lesser degree of specificity is permissible in a Minister's plan" than is permissible in a management plan: Nature Conservation Council of New South Wales Inc v Minister Administering the Water Management Act 2000 [2005] NSWCA 9, (2005) 137 LGERA 320 at [52] per Spigelman CJ. Secondly, under s 50(2A) sections 15 and 36-41 of Part 3 do not apply to a Minister's plan. Three of the procedures for making a Part 3 management plan that do not apply to a Part 4 Minister's plan but which the Minister nevertheless followed in the present case, were a direction to a management committee to prepare a draft management plan (s 15), public exhibition of the plan for at least 40 days (s 38), and submissions thereon by any person (s 39).

80 Section 50(2) refers back to the obligatory and permissible contents of a management plan under Part 3. By reason of s 50(2), the obligatory matters in Part 3 that a Minister's plan under Part 4 must, in general terms, deal with include the following (emphasis added):

16 Management plans to be consistent with other instruments

(1) A management plan must be consistent with:

(a) the State Water Management Outcomes Plan, and

...

(e) government policy, including government policy in relation to the environmental objectives for water quality and river flow.

...

20 Core provisions

(1) The water sharing provisions of a management plan for a water management area or water source must deal with the following matters:

(a) the establishment of environmental water rules and provisions relating to adaptive environmental water for the area or water source,

(b) the identification of requirements for water within the area, or from the water source, to satisfy basic landholder rights,

(c) the identification of requirements for water for extraction under access licences,

(d) the establishment of access licence dealing rules for the area or water source,

(e) the establishment of a bulk access regime for the extraction of water under access licences, having regard to the rules referred to in paragraphs (a) and (d) and the requirements referred to in paragraphs (b) and (c).

(2) The bulk access regime referred to in subsection (1) (e):

(a) must recognise and be consistent with any limits to the availability of water that are set (whether by the relevant management plan or otherwise) in relation to the water sources to which the regime relates, and

(b) must establish rules according to which access licences are to be granted and managed and available water determinations to be made, and

(c) must recognise the effect of climatic variability on the availability of water, and

(d) may establish rules with respect to the priorities according to which water allocations are to be adjusted as a consequence of any reduction in the availability of water, and

(e) may contain provisions with respect to the conditions that must (as mandatory conditions) be imposed on access licences under section 66 (1), including conditions providing for the variation, from time to time, of the share and extraction components of access licences, and

(f) must be consistent with the water management principles.

(3) The rules referred to in subsection (2) (d) must comply with the priorities established under section 58.

...

81 Section 20(3) incorporates by reference s 58, which provides:

58 Priorities between different categories of licence

(1) For the purposes of this Act, the following priorities are to be observed in relation to access licences:

(a) local water utility access licences, major utility access licences and domestic and stock access licences have priority over all other access licences,

(b) regulated river (high security) access licences have priority over all other access licences (other than those referred to in paragraph (a)),

(c) access licences (other than those referred to in paragraphs (a), (b) and (d)) have priority between themselves as prescribed by the regulations,

(d) supplementary water access licences have priority below all other licences.

(2) If one access licence (the higher priority licence) has priority over another access licence (the lower priority licence), then if the water allocations under them have to be diminished, the water allocations of the higher priority licence are to be diminished at a lesser rate than the water allocations of the lower priority licence.

(3) In relation to the water management area or water source to which it applies, a management plan may provide for different rules of priority to those established by subsection (1).

(4) If a management plan so provides for different rules of priority, those different rules are taken to have been established by this section.

82 By reason of s 50(2), a Part 4 Minister's plan may also deal (relevantly ) with the following matters in ss 21 and 24 that a Part 3 management plan is permitted to deal with:

21 Additional provisions

The water sharing planning provisions of a management plan for a water management area or water source may also deal with the following matters:

...

(e) measures to give effect to the water management principles and the objects of this Act,

...

24 Additional provisions

The water use provisions of a management plan for a water management area may also deal with the following matters:

...

(g) other measures to give effect to the water management principles and the objects of this Act,

...

83 Section 15, which does not apply to a Minister's plan under Part 4, empowers the Minister to direct a management committee to prepare a draft management plan on any aspect of water management, including water sharing. However, s 18(1) which does apply to a Minister's plan under Part 4, provides:

In formulating a draft management plan, the management committee must have due regard to the socio-economic impacts of the proposals considered for inclusion in the draft plan.

Access licences

84 Chapter 3 (ss 52-115) is titled "Water management implementation". Part 2, (ss 55A-65), titled "Access licences", of Chapter 3 applies to a water source when proclaimed to apply pursuant to s 55A. As mentioned above at [2], a s 55A proclamation was made, on 25 October 2006, applying, from 1 November 2006, Part 2 of Chapter 3 of the 2000 Act to the water source to which the Plan applies and to all categories and subcategories of access licences in relation to any such water source. The categories of access licences include aquifer access licences and supplementary water access licences: s 57(1)(e),(h).

85 Schedule 10 of the Act is titled "Conversion of former entitlements to access licences and approvals". Clause 3(1)(a)(ii) of Schedule 10 provides for replacement of an entitlement under the 1912 Act by an access licence for a different quantity of water calculated in accordance with a specified methodology in the relevant management plan.

THE PLAN

86 The main features of the Plan have been summarised above at [8]. The Plan is expressed to be a Minister's plan made pursuant to s 50 of the Act: cl 2(1)). The Plan has a term of about ten years and eight months. It took effect on 1 November 2006 and will cease on 30 June 2017 (its cessation coincides with the commencement of a "water year" as defined in the Dictionary to the Plan): cl 3.

Core Provisions

87 The Plan is expressed to cover "the core provisions of s 20 of the Act for water sharing, and additional provisions of section 21 of the Act": cl 2(2).

Applicable Area

88 The area to which the Plan applies is "that area of land within the Murray Water Management Area known as the Lower Murray Groundwater Source... as shown in Schedule 2": cl 4. Within that area the Lower Murray Groundwater Source "includes all water contained in the Calivil, Renmark and the Lower Shepparton unconsolidated alluvial aquifers deeper than 12 metres below the ground surface": cl 5.

Vision, objectives, strategies and performance indicators

89 In accordance with s 35(1) of the 2000 Act, Part 2 (cll 9 -13) of the Plan sets out its vision, objectives, strategies and performance indicators to measure the success of those strategies. Further details relating to the assessment of compliance with performance indicators are set out in Appendix 2 of the Plan. The Minister is required to monitor the performance indicators: cl 58. Clause 10 of the Plan provides that the vision for the Plan is "to achieve healthy aquifer systems, sustaining communities and ecosystems". Clause 11 of the Plan states its objectives (emphasis added):

(a) manage aquifers to support dependent terrestrial and subterranean ecosystems,

(b) manage the extraction of groundwater for estimated sustainable yield,

(c) establish and manage groundwater resource security for communities and industries,

(d) protect groundwater quality from external pollution sources and cross aquifer pollution,

(e) protect the natural surface environment by managing the extraction of poor quality groundwater from aquifers, and

(f) acknowledge, respect, and protect the Indigenous culture and cultural heritage of the traditional peoples of the Murray Region.

90 Clause 12 sets out the strategies of the Plan (emphasis added):

(a) establish environmental water rules and manage access to groundwater consistent with those rules,

(b) establish rules for the protection of basic landholder rights,

(c) establish extraction limits for the groundwater source, taking into account the requirements of the environment,

(d) reduce the share components of all aquifer access licences in this groundwater source to 100% of the sustainable yield of the system,

(e) establish rules for granting of access licences,

(f) establish rules for determining the groundwater available from time to time under access licences,

(g) establish water allocation account management rules,

(h) establish rules for minimising local impact of groundwater extraction on the environment, the aquifer itself, and between users,

(i) establish the access licence dealing rules, and

(j) establish the conditions that will apply to all access licences and water supply work (bore) approvals.

Basis for water sharing

91 Part 3 (cll 14-16) of the Plan is headed "Basis for water sharing". Three points may be noted. First, Part 3 is expressed to be made to give effect to s 5(3) of the Act, which sets out certain principles in relation to "water sharing". Section 5(3) of the Act establishes a hierarchy whereby the protection of the water source and basic landholder rights are to be given priority over other rights. Secondly, the Plan gives effect to that hierarchy by, among other things, providing for the sharing of water within the Groundwater Source "within the limits of water availability on a long-term average basis": cl 15(2)(a). The basis for water sharing is set out in cl 16, headed "Recharge":

The overall basis for water sharing in this Plan is the average annual recharge to the Groundwater Source, which is 83,700 megalitres per year (hereafter ML/year) plus the requirements for basic landholder rights at the commencement of this plan.

92 Thirdly, the Plan recognises certain limitations on the adoption of the volume of 83,700 ML/yr. In particular, cl 15 (including its note):

 

(a) recognises that due to climactic variability, the level of natural recharge will vary;

(b) notes that during the approximate ten year term of the Plan, the groundwater model will be "recalibrated and refined" and that the Natural Resources Commission will consider any resulting changes to the estimated recharge figure when undertaking their review of the Plan.

Storage component

93 Part 4 (cll 17-19) of the Pan is titled "Environmental water provisions". Clause 17 says that Part 4 is made in accordance with ss 5(3), 8(1), 8(2) and 20(1)(a) of the 2000 Act. Clause 18 provides:

18 Planned environmental water

This Plan establishes the following planned environmental water rules:

(1) subject to Part 10 Division 2 of this Plan, the physical water contained in the storage component of this groundwater source, minus the supplementary access permitted under clause 28, as varied by clause 34 will be reserved for the environment,

(2) water in excess of the long-term extraction limit established in clause 32 of this Plan may not be taken and used for any purpose, thereby protecting a proportion of the total water available in the water source for fundamental ecosystem needs, from increases in water extraction over the long-term.

Note: No portion of the long-term average recharge is reserved as planned environmental water meaning the long-term storage is the only planned environmental water. ...

94 Clause 18(1) of the Plan is the only provision of the Plan which refers to "the storage component". Oddly, that expression, as such, is not defined in the Plan and the Plan defines (in its Dictionary), but does not use, the expression "long term average storage component" as meaning "the volume of water in the aquifer less the average annual recharge, and exceeds the requirements [of] supplementary water access provided for in this Plan".

Environmental water and basic landholder rights

95 Parts 4 and 5 of the Plan address environmental water and basic landholder rights (as defined in the 2000 Act) respectively, by allocating water to these uses. They give effect to the priorities set out in s 5(3) of the Act.

Bulk access regime

96 Part 6 (cl 23) of the Plan provides for a "bulk access regime". The expression "bulk access regime" is unhelpfully defined in the dictionary to the Act to refer back to s 20(1 )(e) of the Act. It may be deduced that in essence, a bulk access regime consists of the water sharing rules that determine how much water will be available for extraction by all licensed water users within a water sharing plan, and rules under which licences are granted and managed, and available water is shared through available water determinations. Thus, the function it serves is to establish the overall extraction regime and priorities for distribution of available water.

Requirements for water for extraction under access licences: s 20(1)(c) 2000 Act

97 Part 7 (cll 24-29) of the Plan is titled "Requirements for water for extraction under access licences". Clause 24 states that Part 7 is made in accordance with s 20(1)(c) of the Act (which mandates that the water sharing provisions of a management plan must deal with "the identification of requirements for water for extraction under access licences"). It engages with Part 2, titled "Access Licences", of Chapter 3 of the Act relating to available water determinations. An access licence entitles its holder to a "share component": s 56(1). A licence holder may not, in any particular year, be entitled to draw the whole or any part of their share component. That will depend upon the making of an "available water determination" by the Minister under s 59 of the Act. Clause 27 of the Plan provides a formula for calculating the share components of aquifer access licences and estimates the total share component as 83,580 ML/year at the commencement of the Plan. Clause 28 provides a formula for calculating the share components of supplementary water access licences and estimates the total share component as 48,480ML at the commencement of the Plan. Both formulae have regard to history of use. Clauses 27 and 28 are in the following terms:

27 Share components of aquifer access licences

(1) For those Water Act 1912 entitlements equal to or less than 20 ML that are to become aquifer access licences in this groundwater source at the commencement of this Plan, the share component is to be equal to the Water Act 1912 entitlement.

(2) For those Water Act 1912 entitlements greater than 20 ML that are to become aquifer access licences in this groundwater source at the commencement of this Plan, the share component will be established in accordance with the following formula:

(a) SC_AAL= 20 where AE/∑AE_(a) x (R - LWU -SD - ∑SL) <20

(b) For the remaining Water Act 1912 entitlements greater than 20 ML

      SC_AAL = AE/∑AE(b) x (R - LWU -SD -∑SL -∑SC_AAL(a))

(3) For the purpose of subclauses 2 (a) and 2 (b):

(a) SC_AAL is the share component of the aquifer access licence,

(b) AE is the adjusted entitlement calculated from the following formula:

     AE = (HoE x 0.78)+((WAE - HoE) x 0.22)

Where HoE is as defined in subclause (4), and where WAE is the Water Act 1912 entitlement,

(c) ∑AE is the total of all adjusted entitlements for Water Act 1912 entitlements greater than 20 ML,

(d) ∑AE(b) is the total of all adjusted entitlements for Water Act 1912 entitlements greater than 20 ML other than those for which a share component is allocated under subclause 2 (a),

(e) R is the amount of recharge established in clause 16 (1),

(f) LWU is the total of local water utility access licence share components in this groundwater source at the commencement of this Plan,

(g) SD is the total of domestic and stock access licence share components in this groundwater source at the commencement of this Plan,

(h) ∑SL is the total of all Water Act 1912 entitlements that are less than or equal to 20 ML as defined in subclause (1), and

(i) ∑SC_AAL(a) is the total of all share components calculated under subclause 2 (a)

(4) For the purposes of subclause (3) and clause 28 HoE is equal to average of the three highest years of metered extraction in the water years 1999/00 to 2004/05.

(5) It is estimated that at the time of commencement of this Plan the sum of aquifer access licences established will total 83,580 ML.

28 Share components of supplementary water access licences

(1) Those Water Act 1912 entitlements that are to be converted to an aquifer access licence in this groundwater source under clause 27 (2) may also receive a supplementary water access licence.

The share component of a supplementary water access licence converted under subclause (1) will be established in accordance with the following formula:

 

SC_SWAL=WAE x 31.25,

or

SC_SWAL= HoE - SC_AAL

whichever is the greater

where:

(a) SC_SWAL is the share component for the supplementary water access licence.

(b) WAE is Water Act 1912 entitlements,

(c) HOE is as defined in clause 27(4),

(d) SC_AAL is the share component of the aquifer access licence established under clause 27(2).

(2) It is estimated that at the time of commencement of this Plan the sum of supplementary water access licences established under subclause (1) will total 48,480 ML.

Rules for granting access licences

98 Part 8 (cll 30-31) then sets out the rules for granting access licences. Part 8 is expressed as to be made in accordance with ss 20(2)(b), 61 and 63 of the Act.

Extraction Limit

99 Part 9 (cll 32-34) of the Plan is titled "Limits to the availability of water". Division 1 (cll 32-33) is titled "Long-term average extraction limits". Clause 32(1) says that Division 1 is made in accordance with s 20(2)(a) of the Act (which provides that a bulk access regime "must recognise and be consistent with any limits to the availability of water that are set"). Clause 32(2) provides:

The extraction limit for this groundwater source is initially 83,700ML/yr, plus total water made available to supplementary water access licences under clause 34, plus the total requirements for basic landholder rights at the commencement of this plan.

100 Clause 33 contains measures for monitoring groundwater use, with a view to keeping it within the extraction limit in the long term. Clause 33(3) provides:

33 Compliance with the extraction limit

(3) If the 3 year average of extraction in this groundwater source exceeds the extraction limit established in clause 32 by 5% or greater, then the available water determination made for aquifer access licences under clause 34 (6) for the following water year, should be reduced by an amount that is assessed necessary by the Minister to return subsequent total water extraction to the extraction limit.

101 Division 2 (cl 34), titled "Available water determinations" of Part 9 says it is made in accordance with s 20(2)(b) of the Act. There should be an available water determination at the commencement of each water year for each category of access licences. The available water determination for aquifer access licences should equal the extraction limit set in s 32(2) minus the higher priority water uses (i.e. domestic and stock use and local water utility access licences) and for supplementary water access licences, or such lower amount as results from the operation of cl 33 (i.e. if the three year average of extraction exceeds the extraction limit established under cl 32 by 5 per cent): cl 34(6).

102 Because of cl 32(2) of the Plan, the extraction limit at the commencement of the Plan exceeds the longer term extraction limit by a considerable degree because of the provision for supplementary water access licences. However, the available water determination for supplementary water access licences is to reduce over the life of the Plan to nil by 30 June 2015: cl 34(9)). The effect of this is that over the duration of the Plan the amount of water that is allocated is gradually brought into line with that referred to in cl 16. In that way, the Plan seeks to limit the impact on groundwater users while gradually reducing water use to a level that was regarded as being environmentally sustainable.

103 Unused water allocations may be carried over from one water year to the next subject to certain limits: cl 39(6) - (8). This provides a measure of flexibility for licence holders.

SWMOP targets

104 Schedule 3 to the Plan comments on its contribution to targets in the SWMOP (discussed above at [31] - [32] and [73]). The comments in relation to SWMOP targets 1e and 6a refer to sustainable yield. The comment in relation to SWMOP target 1e is that: "This Plan establishes an extraction limit of recharge for this Groundwater Source. Extraction will be reduced to 100 % of the sustainable yield by the end of the Plan". The comment in relation to SWMOP target 6a is that: "The total aquifer access share components will be reduced to the sustainable yield by the end of this Plan".

PRINCIPLES OF JUDICIAL REVIEW

105 The applicants raise four grounds of judicial review: first, failure to consider mandatory relevant matters; secondly, considering a prohibited or mandatory irrelevant matter; thirdly, irrationality in reasoning and fact finding or manifest unreasonableness; and fourthly, failure of the Plan to deal with mandated matters.

106 The respondents submit that the Plan is a type of legislative instrument or delegated legislation and, therefore, the bases on which it may be challenged are more limited than for decisions of an administrative character. In Austral Fisheries Pty Ltd v Minister for Primary Industries & Energy (1992) 37 FCR 463 at 473 O'Loughlin J held that the power of the Minister under s 7B of the Fisheries Act 1952 (Cth) "by instrument in writing, to determine a plan of management for a fishery" is of a legislative character. By analogy, it would seem that in the present case the Plan is of a legislative character. It has been observed, however, that in terms of the availability of grounds of judicial review, the courts are recognising that the legislative/administrative distinction can be illusory: Pearce and Argument, Delegated Legislation in Australia, 4th ed (2012) at [32.1], [12.9]. In my opinion the general character of the Plan is not determinative. The question is whether the Plan and the Minister's relevant conduct when making the Plan were authorised by the 2000 Act. Therefore, the availability of the grounds on which validity of the Plan is challenged by the applicants depends upon construing the 2000 Act. If the grounds are available, it is then necessary to interpret the Plan and assess the Minister's conduct to determine whether the grounds are made out.

107 Matters the Minister is bound to take into account or prohibited from taking into account are those matters (if any) which the 2000 Act expressly states must or must not be considered and those which, by implication from the subject matter, scope and purpose of the 2000 Act, are required to be considered or not considered: Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40, (1986) 162 CLR 24 at 39-41. As I observed in Capital Airport Group Pty Ltd v Director-General of the NSW Department of Planning (No 2) [2011] NSWLEC 83 at [100], the High Court in Minister for Immigration and Citizenship v SZJSS [2010] HCA 48, 85 ALJR 306 at [26] approved the formula of Gummow J in Khan v Minister for Immigration and Ethnic Affairs [1987] FCA 457, 14 ALD 291 that the statutory duty to "consider" means to "give proper, genuine and realistic consideration to the merits of the case", whilst noting the caution in Swift v SAS Trustee Corporation [2010] NSWCA 182 at [45] that this formula should not be permitted to encourage a slide into impermissible merits review. The High Court did not refer to an earlier view expressed by the NSW Court of Appeal that it is preferable to avoid using that formula or similar descriptive formulae but that the relevant matter must be more than merely adverted to or given mere lip-service: Anderson v Director-General Department of Environment and Climate Change [2008] NSWCA 337, 163 LGERA 400 at [51]-[58]. An earlier review of the authorities relating to the use of this formula is found in my judgment in Anderson v Minister for Infrastructure Planning and Natural Resources [2006] NSWLEC 725, 151 LGERA 229 at [52].

108 The ground of manifest unreasonableness is also called "Wednesbury" unreasonableness after the seminal English case, Associated Provincial Picture House Ltd v Wednesbury Corporation [1948] 1 KB 223. A manifestly unreasonable discretionary decision is not a decision that the Court considers is unreasonable. It is a decision that the Court considers is so unreasonable that no reasonable body could have made it. It requires "something overwhelming": Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21, (1999) 197 CLR 611 at [44] (Eshetu); Marrickville Metro Shopping Centre Pty Ltd v Marrickville Council [2010] NSWCA 145, (2010) 174 LGERA 67 at [105]. The boundary of manifest unreasonableness is vigilantly guarded by the courts because it lies next to the forbidden territory of merits review where the courts cannot enter.

109 The decision of the High Court in Minister for Immigration and Citizenship v Li [2013] HCA 18 (Li) is a rare case where a claim of Wednesbury unreasonableness succeeded. The High Court at [75] - [76], [110] noted the close analogy between the manifest unreasonableness ground and appellate review of judicial discretion in accordance with the principles in House v The King [1936] HCA 40, (1936) 55 CLR 499 at 505-506 where Dixon, Evett and McTiernan JJ said:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

110 As regards the close analogy between judicial review of administrative action and appellate review of a judicial discretion in Li, Hayne, Kiefel and Bell JJ said at [75] - [76]:

75 In Peko-Wallsend , Mason J, having observed that there was considerable diversity in the application by the courts of the test of manifest unreasonableness, suggested that "guidance may be found in the close analogy between judicial review of administrative action and appellate review of a judicial discretion". House v The King holds that it is not enough that an appellate court would have taken a different course. What must be evident is that some error has been made in exercising the discretion, such as where a judge acts on a wrong principle or takes irrelevant matters into consideration. The analogy with the approach taken in an administrative law context is apparent.

76 As to the inferences that may be drawn by an appellate court, it was said in House v The King that an appellate court may infer that in some way there has been a failure properly to exercise the discretion "if upon the facts [the result] is unreasonable or plainly unjust". The same reasoning might apply to the review of the exercise of a statutory discretion, where unreasonableness is an inference drawn from the facts and from the matters falling for consideration in the exercise of the statutory power. Even where some reasons have been provided, as is the case here, it may nevertheless not be possible for a court to comprehend how the decision was arrived at. Unreasonableness is a conclusion which may be applied to a decision which lacks an evident and intelligible justification.

111 Gageler J said at [108] - [111] and [113] (omitting citations):

108 Judicial determination of Wednesbury unreasonableness is constrained by two principal considerations. One is the stringency of the test that a purported exercise of power is so unreasonable that no reasonable repository of the power could have so exercised the power. The other is the practical difficulty of a court being satisfied that the test is met where the repository is an administrator and the exercise of the power is legitimately informed by considerations of policy.

109 The conception underlying the stringency of the test as applicable in Australia is captured by the observation made 50 years ago that :

"This Court has in many and diverse connexions dealt with discretions which are given by legislation to bodies, sometimes judicial, sometimes administrative, without defining the grounds on which the discretion is to be exercised ... We have invariably said that wherever the legislature has given a discretion of that kind you must look at the scope and purpose of the provision and at what is its real object. If it appears that the dominating, actuating reason for the decision is outside the scope of the purpose of the enactment, that vitiates the supposed exercise of the discretion. But within that very general statement of the purpose of the enactment, the real object of the legislature in such cases is to leave scope for the judicial or other officer who is investigating the facts and considering the general purpose of the enactment to give effect to his view of the justice of the case."

110 The same observation lends force to the suggestion that, for the purpose of applying the test, "guidance may be found in the close analogy between judicial review of administrative action and appellate review of a judicial discretion" . There is, in particular, a close analogy with the settled principle that an appellate court will review the exercise of a judicial discretion "if upon the facts it is unreasonable or plainly unjust" , or if "failure to give adequate weight to relevant considerations really amounts to a failure to exercise the discretion actually entrusted to the court" . It is therefore fair to say that "[i]f a discretionary power is exercised in a way in which a reasonable repository of the power might exercise it, the exercise of the power is supported by the statute which confers it, whether the discretion is judicial or administrative in nature" .

111 It has nevertheless been observed that "in practice the comparative familiarity of an appellate court with judicial discretions and the usual confines of a judicial discretion make the appellate court more sensitive to an unreasonable exercise of discretion and more confident of its ability to detect error in its exercise" . That is because it is "harder to be satisfied that an administrative body has acted unreasonably, particularly when the administrative discretion is wide in its scope or is affected by policies of which the court has no experience" . Similar observations have been made as to the inability of a court "effectively" to review a state of satisfaction forming a pre-condition to an exercise of a statutory power or performance of a statutory duty "where the matter of which the [repository] is required to be satisfied is a matter of opinion or policy or taste" .

...

113 Yet the stringency of the test remains. Judicial determination of Wednesbury unreasonableness in Australia has in practice been rare. Nothing in these reasons should be taken as encouragement to greater frequency. This is a rare case.

112 The ground of irrationality in reasoning and fact finding gained traction in decisions of the High Court referred to below concerning subjective jurisdictional facts. But it has since been applied by the NSW Court of Appeal in the non-jurisdictional fact context of another plan under s 50 of the 2000 Act: Murrumbidgee Groundwater at [120], approved in Notaras v Waverley Council [2007] NSWCA 333, (2007) 161 LGERA 230 at [122]. A jurisdictional fact is a fact that, by statute, is a condition precedent to the decision-maker's exercise of jurisdiction. An objective jurisdictional fact is that X exists or occurred. A subjective jurisdictional fact is that the decision maker has a prescribed mental state, such as being satisfied or holding the opinion that X exists or occurred. In the case of a subjective jurisdictional fact, the court determines on the evidence before it whether the decision maker was satisfied or held the opinion that X exists or occurred. But (as discussed below) even if that is so, if that state of satisfaction or opinion was seriously irrational or illogical the decision will be unlawful. In contrast, in the case of an objective jurisdictional fact the court determines on the evidence before it whether X exists or occurred; therefore, inquiry into irrationality by the administrative decision maker is irrelevant. Authorities concerning jurisdictional facts were reviewed in my judgments in Australians for Sustainable Development Inc v Minister for Planning [2011] NSWLEC 33, (2011) 182 LGERA 370 at [217] - [219] and Calardu Penrith Pty Ltd v Penrith City Council [2010] NSWLEC 50 at [38] - [39].

113 A subjective jurisdictional fact is open to challenge on the basis that the subjective state of mind was "irrational, illogical and not based upon findings or inferences of fact supported by logical grounds": Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30, (2003) 198 ALR 59 at [34], [37] (S20); approved in Minister for Immigration and Multicultural and Indigenous Affairs v SGLB [2004] HCA 32, (2004) 207 ALR 12 at [38] citing S20 (SGLB) and in Minister for Immigration and Citizenship v SZMDS [2010] HCA 16, (2010) 240 CLR 611 at [40] - [41] per Gummow ACJ and Kiefel J, at [119] and [124] - [132] per Crennan and Bell JJ (SZMDS); D'Amore v Independent Commission Against Corruption [2012] NSWSC 473 at [76] - [81], [85] - [86] per McClellan CJ at CL. These were all cases of subjective jurisdictional fact (the decision-maker was empowered to make a decision if "satisfied" as to prescribed matters).

114 It is convenient to call this ground "serious irrationality" since not every rational or logical lapse will suffice. That is the basis on which I would distinguish the principle that there is no error of law in simply making a wrong finding of (non-jurisdictional) fact: Waterford v The Commonwealth [1987] HCA 25, (1987) 163 CLR 54; Australian Broadcasting Tribunal v Bond [1990] HCA 33, (1990) 170 CLR 321 at 356 (Bond); Bruce v Cole (1998) 45 NSWLR 163 (CA) at 187; Eshetu at 654; Corporation of the City of Enfield Development Assessment Commission [2000] HCA 5, (2000) 199 CLR 135 at 154. In Bond Mason CJ held at 356: "Thus, at common law, according to the Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place". Acceptance of serious irrationality as a basis for judicial review resolves, in effect, the "serious question" whether such a suggested error "is of the kind to which the Wednesbury principle is directed": Eshetu at [40] per Gleeson CJ and McHugh J. It is difficult to reconcile the serious irrationality ground with the majority decision in Azzopardi v Tasman UEB Industries Ltd [1985] 4 NSWLR 139 at 155-156 (per Glass JA, Samuels JA agreeing) that even a perverse finding of fact is not an error of law. The dissenting view of Kirby P in Azzopardi at 151 has prevailed that there is an error of law where there is "manifest error or illogicality in the reasoning process" or reliance on facts which "indicate such an unexplained perversity as to suggest that an error has taken place".

115 This serious irrationality ground sets the same very high standard as for manifest (Wednesbury) unreasonableness. Thus, an attacked finding of fact must be one that no rational or logical decision-maker could have made: SZMDS at [130] - [131] per Crennan and Bell JJ. Gummow ACJ and Keifel J said that the characterisation of a decision as seriously irrational or illogical should "not receive an affirmative answer that is lightly given": at [40].

116 It has been said that Wednesbury unreasonableness is "confined to the exercise of a discretion in circumstances where no reasons are required" or (alternatively) that there is an overlap between Wednesbury unreasonableness and a standard of rationality: SZMDS at [128] per Crennan and Bell JJ. In New South Wales, the exercise of a discretion "in circumstances where no reasons are required" is limited in scope because court rules and practice notes provide machinery whereby an applicant for judicial review can obtain reasons from the decision-maker: Part 59 r 59.9 Uniform Civil Procedure Rules 2005; Supreme Court Common Law Division - Administrative Law List; Practice Note SC CL 3 Administrative Law List at [23]; Land and Environment Court Rules 2007 r 4.3(b); Land and Environment Court Practice Note Class 4 proceedings at [14(b)]. In four decisions of the New South Wales Court of Appeal, the serious irrationality formula has been treated as synonymous with Wednesbury unreasonableness itself in a non-jurisdictional fact context. The first was Murrumbidgee Groundwater where one of the unsuccessful grounds of challenge to the validity of a water sharing plan under s 50 of the 2000 Act was that it was irrational because it treated the groundwater source as a single body of water and provided for pro rata cuts in entitlement across the whole area: at [110]. Spigelman CJ (with whom Beazley and Tobias JJA agreed) stated the following at [129], citing S 20 and SGLB:

Perhaps the most appropriate formulation [of Wednesbury unreasonableness] is whether the decision is "illogical, irrational or lacking a basis in findings or inferences of fact supported on logical grounds.

117 This formulation was adopted by the Court of Appeal in Westfield Management Ltd v Perpetual Trustee Company Ltd [2006] NSWCA 245 at [71]; Notaras v Waverley Council [2007] NSWCA 333, (2007) 161 LGERA 230 at [122]; and Marrickville Metro Shopping Centre Ltd v Marrickville Council [2010] NSWCA 145, (2010) 174 LGERA 67 at [104] - [105].

118 Before determining that a failure to observe the requirements of a legislative scheme has the consequence that the exercise of a statutory power has failed and that the result of the purported exercise is invalid, it is necessary to ask whether there is a legislative purpose to invalidate the exercise of the statutory power by reason of the alleged failure: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28, (1998) 194 CLR 355 at [91]: Nature Conservation Council of New South Wales Inc v Minister Administering the Water Management Act 2000 [2005] NSWCA 9, (2005) 137 LGERA 320 at [90].

ADMISSIBILITY OF EXPERT EVIDENCE IN JUDICIAL REVIEW PROCEEDINGS

119 So as not to unduly disrupt the progress of the hearing, and as suggested by the parties, I admitted the expert evidence of the applicants' hydrogeologist, Mr Wade, subject to the respondents' objection. The respondents' primary objection is that expert evidence is inadmissible in judicial review proceedings.

120 If the respondents' submission were to be accepted, it would mean that even an egregious error resulting in a manifestly unreasonable decision that no reasonable decision-maker could ever have made, could not in any circumstances be exposed through expert evidence. In principle and on the authorities, I do not accept this.

121 Judicial review of administrative decisions distinguishes between three steps in the decision-making process. First, the existence of a fact that is a precondition to the exercise of the decision-making power (i.e. a jurisdictional fact). Secondly, general fact finding and reasoning in the course of decision-making. Thirdly, the decision itself. The court determines the lawfulness of the first step (jurisdictional fact) on the evidence before the court. The court determines the lawfulness of the second and third steps on, generally, the material before the decision-maker.

122 Where a Minister is the decision-maker, if the Minister's Department is in possession of documents they are treated as before the Minister in the sense that the Minister is deemed to have constructive notice of and cannot ignore their contents, and therefore cannot defend a failure to consider a relevant matter contained therein: Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40, (1986) 162 CLR 24 at 31 per Gibbs CJ, 44-45 per Mason J, 65-67 per Brennan J, 70 per Deane J, 71 per Dawson J; Videto v Minister for Immigration & Ethnic Affairs [1985] FCA 449, (1985) 8 FCR 167, at [51]; Schroders Australia Property Management Ltd v Shoalhaven City Council [1999] NSWLEC 251, (1999) 110 LGERA 130 at [24]; Schroders Australia Property Management Ltd v Shoalhaven City Council [2001] NSWCA 74 at [67]; Minister for Immigration and Multicultural and Indigenous Affairs v Huynh [2004] FCAFC 256, (2004) 139 FCR 505; at [51], [80]; SZMYO v Minister for Immigration and Citizenship [2010] FMCA 963 at [77]; Gilbank v Bloore (No 2) [2012] NSWLEC 273 at [54]; Gibson v Minister for Finance, Natural Resources and the Arts [2012] QSC 132, (2012) 192 LGERA 118 at [110].

123 In my opinion, the admissibility of evidence not actually or constructively before the decision-maker on an application for judicial review of an administrative decision depends on the ground of review, the relevant issue and the nature of the evidence.

124 Judicial review cannot survive if it tolerates all expert evidence; it does not follow, however, that it will collapse if it tolerates some. In principle and on the authorities, expert evidence can be tolerated in some circumstances, including at the edge of judicial review, at the high and usually insurmountable barrier of the ground of manifest unreasonableness, if it is relevant to the proposition that, on the material before the decision-maker, the decision was manifestly unreasonable. No violence is done to the general principle that judicial review grounds (other than jurisdictional fact) are determined by reference to the material before the decision-maker if it is acknowledged that expert evidence may be required to show that that material was fallacious and operated to produce an absurd result that no reasonable decision-maker could have reached. The precise limit of the admissibility of expert evidence for this purpose is not a bright line. But expert evidence is likely to be admissible where, for example, the technical nature of the material before the decision-maker requiring review is such that it may not be fully understood by the court without expert evidence. The admissibility of expert evidence for this purpose is a different question to whether, at the end of the day, the court is satisfied that the hard to prove ground of manifest unreasonableness has been established. It is insufficient to establish mere factual error.

125 However, it is difficult to see the relevance of material not actually or constructively before the decision-maker where the ground of review is (without more) failure to take account of a mandatory relevant matter or taking account of a prohibited matter: Attorney-General (NT) v Minister for Aboriginal Affairs (1989) 23 FCR 536 at 539 - 540; approved McCormack v Deputy Commissioner of Taxation Large Business & International [2001] FCA 1700, (2001) 114 FCR 574 at [37]; Fullerton Cove Residents Action Group Inc v Dart Energy Ltd (No 2) [2013] NSWLEC 38 at [45] (Pepper J). The applicants seek to make it admissible by injecting into this ground that the Minister's consideration had to be of a "sound and reliable" groundwater model and a "true and correct" recharge: see [181] below. The injection of such words in effect would introduce an unpleaded objective jurisdictional fact ("sound and reliable" and "true and correct") to which the expert evidence is then aimed. Such words are not pleaded and, even if they were pleaded, would have to be rejected as not constituting a mandatory relevant consideration under the 2000 Act.

126 In Attorney-General (NT) v Minister for Aboriginal Affairs, the applicant, under the Administrative Decisions (Judicial Review) Act 1977 (Cth), challenged a decision of the respondent Minister to grant certain land to an Aboriginal Land Trust. The applicant contended that the land was excluded from the statutory power to make grants because it was "land on which there is a road over which the public has a right of way": s 11(3) Aboriginal Land Rights (Northern Territory) Act 1976 (Cth). A question arose as to the admissibility of evidence relating to the use of roads and expenditure of funds thereon prior to the making of the decision. Lockhart J said at 539-540:

The admissibility of evidence not before the decision-maker depends upon the grounds of review on which the applicant relies before the Court. In the case of some grounds of review (for example, if the decision-maker failed to take into account a relevant consideration) (s 5(2)(b) of the Judicial Review Act) or took into account an irrelevant consideration (s 5(2)(a)) it is difficult to see the relevance of material not before the decision-maker. Other grounds of review (for example, unreasonable exercise of the power (s 5(2)(g)) will generally, lead to the evidence consisting primarily of the material before the decision-maker.

Where the ground relied upon is error of law (s 5(1)(f)) the trend of judicial opinion is that the evidence before the Court is confined to the material before the decision-maker ...

The primary ground of attack upon the first respondent's decision in this case is "that the decision was not authorised by the enactment in pursuance of which it was purported to be made": s 5(1)(d) of the Judicial Review Act.

The determination of whether an action taken falls within the power conferred will often centre on issues of statutory interpretation. The court's task in such a case is essentially that of resolving a legal question, and, where that is the extent of the issue, there will ordinarily be no necessity for adducing material which was not before the decision-maker. Where however there is a question of mixed fact and law, that is, where there is an issue both of statutory interpretation and the requisite factual situation which will bring the statute into operation, there may be a need to adduce additional material. That evidence would be directed to establishing that on the true facts of the case, regardless of the material that was actually before the decision-maker the decision made was one which could not have been lawfully made. In this case the applicants seek to establish that the true fact of the matter is that certain roads within the relevant area were in fact public roads within the meaning of s 11(3) and could not therefore lawfully be included within a grant of land under the Act. In my opinion it is open to the applicant to establish that ground by adducing evidence which was not before the first respondent when he made his decision.

127 In McCormack, Sackville J, after citing the above quoted passage, said at [38] - [40]:

38. As Lockhart J's analysis indicates, the admissibility of evidence on an application for judicial review of an administrative decision will depend on the ground of review and the circumstances of the case. It has been held, for example, that evidence may be admitted where it supports a claim that the applicant has been denied procedural fairness (Percerep v Minister for Immigration and Multicultural Affairs (1998) 86 FCR 483 (Weinberg J)); or that the decision-maker lacked jurisdiction to make the decision because jurisdiction was dependent on an actual state of facts which did not exist (Queensland v Wyvill (1989) 25 FCR 512 at 519-520 per Pincus J, reversed on other grounds in Attorney-General (Cth) v Queensland (1990) 25 FCR 125); or that the decision-maker based the decision on a finding of a particular fact which did not exist (Curragh Queensland Mining Ltd v Daniel (1992) 34 FCR 212 at 224 per Black CJ).

39 Evidence tendered in support of the ground specified in s 5(1)(d) of the ADJR Act (that the decision was not authorised by the relevant enactment) may or may not be admissible, depending on the issue in the case and the nature of the proffered evidence. In my opinion, the evidence of the partners as to the extent of their involvement in tax planning arrangements was not relevant to any legal issue in the present case. The evidence might have been relevant if the applicants had relied on other grounds of review. (I am not, of course, suggesting that the applicants could or should have done so.) If it had been suggested, for example, that each partner's recent active involvement in tax planning arrangements was a jurisdictional fact, evidence might have been adduced to show that the facts, objectively viewed, were otherwise. The evidence also might have been relevant to a claim that the decision-maker had information before her that should have caused her to make further inquiries about the alleged tax planning activities of the partners: cf Luu v Renevier (1989) 91 ALR 39. Neither of these claims was advanced on behalf of the applicants.

40 In substance, the only significance of the evidence of the partners' involvement in tax planning activities was that it cast doubt on the accuracy of one of the factual findings made by the decision-maker in the course of reaching her decisions. This does not suffice to make the evidence admissible on an application for judicial review of the decision. Even if it were a ground of review that the material before the decision-maker was insufficient to justify the finding that each partner was one of "the more aggressive partners of E & Y in Sydney", the evidence, since it did not concern material that was before the decision-maker, did not establish or tend to establish that that was the case. In my view, the evidence was not admissible.

128 Expert evidence not before the decision-maker may be admitted where it is relevant to a ground of denial of procedural fairness, or a ground of absence of jurisdictional fact, or a ground that the decision was based on a finding of a particular fact which did not exist, or where the decision-maker had information that should have caused her to make further inquiries: McCormack. Expert opinion evidence may be admitted as to the meaning of technical terms in material before the decision-maker: Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707, (2005) 148 FCR 446 at [467] (Weinberg J).

129 Expert and other evidence not before the decision-maker may be admitted to show that it is obvious that there was material readily available to the decision-maker which was likely to be of critical importance in relation to a central issue for determination. Such evidence may be regarded as relevant to a ground of manifest unreasonableness: Prasad v Minister for Immigration and Ethnic Affairs [1985] FCA 46, (1985) 6 FCR 155 at [33] (Wilcox J); followed in Luu v Renevier (1989) 91 ALR 39 at 50 (FCA/FC), Tickner v Bropho (1993) 40 FCR 183,199 (Black CJ) and Minister for Immigration and Ethnic Affairs v Teoh [1995] HCA 20, (1995) 183 CLR 273, 290 (Mason CJ and Deane J). Or it may be regarded as relevant to a ground of jurisdictional error by constructive failure to exercise jurisdiction: Minister for Immigration and Citizenship v SZIAI [2009] HCA 39, (2009) 259 ALR 429 at [25]; Minister for Immigration and Citizenship v SZGUR [2011] HCA 1, (2011) 241 CLR 594 at [74] - [78] per Gummow J (Heydon and Crennan JJ agreeing). Or it may be regarded as relevant where it is alleged that there was a breach of a duty to make inquiries: SZGUR at [22] per French CJ and Kiefel JJ (Heydon and Crennan JJ agreeing); King v Great Lakes Shire Council (1986) 58 LGRA 366, 371, 376, 383 (Cripps CJ); Caldera Environment Centre Inc v Tweed Shire Council [1993] NSWLEC 102 (Talbot J). The cases to which I have referred in this paragraph were considered by me in more detail in Friends of King Edward Park Inc v Newcastle City Council [2012] NSWLEC 113 at [77] - [83]. See also Fullerton Cove Residents Action Group Incorporated v Dart Energy Ltd (No 2) [2013] NSWLEC 38 at [42] - [45] (Pepper J).

130 The line of authority that bears the closest analogy with the legislative scheme presently under consideration is the Federal Court case law on the management of fisheries by a Minister under the Fisheries Act 1952 (Cth). This line of authority begins with Austral Fisheries Pty Ltd v Minister for Primary Industries & Energy (1992) 37 FCR 463 (O'Loughlin J), affirmed on appeal in Minister for Primary Industries & Energy v Austral Fisheries Pty Ltd (1993) 40 FCR 381 (Full Court). The Full Court of the Federal Court held that: (a) the exercise of the Minister's power under a statutory provision to allocate units of fishing capacity had to be exercised in a manner that was not capricious or irrational, and (b) it was open to the primary judge to find that the incorporation in a plan of management of a complex formula for the allocation of catch quotas, which was based on a statistical fallacy and which operated to produce an absurd result, constituted an exercise of power which was capricious and irrational, such that no reasonable person could ever have devised it. The latter conclusion was based on unchallenged expert statistical evidence called by the applicant that the formula contained a "statistical fallacy" that produced an "irrational result".

131 This line of Federal Court authority continues with another challenge to a plan under the Fisheries Act, which failed both at first instance (Bienke v Minister for Primary Industries and Energy (1994) 125 ALR 151 per Gummow J) and on appeal (Bienke v Minister for Primary Industries and Energy (1996) 63 FCR 567). Wednesbury unreasonableness was alleged and again expert evidence was admitted. There was a dispute between the experts. The expert for the applicant criticised the methodology underlying one aspect of the plan as deeply flawed. There was, however, expert evidence on the part of the Minister justifying the decision. Gummow J at first instance emphasised the following, at 166:

...great caution must be shown in judicial review under s 39B of determinations resting upon factual matters where (i) the determinations in question were made after prolonged public debate, and (ii) being legislative in character, the determinations were subject to disallowance by either House of Parliament, and (iii) the disputed matters of fact turn upon expert knowledge and opinion, there is dispute between the experts, and there was no cross-examination upon that conflict.

132 Expert evidence was admitted in a case that unsuccessfully challenged, including on the ground of irrationality, the validity of another Minister's plan under s 50 of the 2000 Act: Murrumbidgee Groundwater Preservation Association v Minister for Natural Resources [2004] NSWLEC 122 (McClellan CJ); affirmed on appeal Murrumbidgee Groundwater Preservation Association Inc v Minister for Natural Resources [2005] NSWCA 10, (2005) 138 LGERA 11. In that case the applicants complained that the plan was invalid on the basis that there was limited interconnectivity between the aquifers and therefore it was irrational for the plan to treat the groundwater source as a single body of water and provide for pro-rata cuts in entitlements across the whole area. Expert evidence was admitted about the degree of interconnectivity of the aquifers and the reasonableness of extraction limits. Spigelman CJ noted that the line of Federal Court authority to which I have referred bore the closest analogy with the legislative scheme under the 2000 Act and that expert evidence had been admitted in those cases: at [132] - [136].

133 Expert evidence was admitted in an English judicial review case where it was held that a local council's determination of a rate was unlawful, one of the grounds of challenge being that it was manifestly unreasonable or irrational: The Queen on the application of Mavalon Care Ltd v Pembrokeshire County Council [2011] EWHC 3371 (Admin) at [14] (Beatson J).

134 In submitting that Mr Wade's evidence is irrelevant and therefore inadmissible, the respondents rely heavily on the decision in Moolarben Coal Mines Pty Ltd v Director-General, Department of Industry and Investment (NSW) (Agriculture Division) [2011] NSWLEC 191, (2011) 186 LGERA 342 at [68] - [76]. There Moore AJ rejected expert evidence tendered in relation to the manifest unreasonableness ground. His Honour held that that ground had to be determined only by reference to material before the decision-maker, citing McCormack and Woolworths Ltd v Pallas Newco Pty Ltd [2004] NSWCA 422, (2004) 61 NSWLR 707 at [91] per Spigelman CJ. His Honour acknowledged that there was persuasive authority that expert evidence was admissible to make good that ground, citing Australian Retailers Association at [457]. His Honour said he preferred the approach that it was irrelevant and therefore inadmissible.

135 In Woolworths Ltd v Pallas Newco Pty Ltd at [91] Spigelman CJ said of the primary judge's reasons (omitting citations):

His Honour gave no reasons for this conclusion [that the Council's decision was unreasonable in the Wednesbury sense]. The reasons earlier expressed in his Honour's judgment did not distinguish in any respect between the documents available to him and the documents available to the Council. Although he purported to act only on the basis of documents before the Council, his Honour did not identify what aspects of those documents formed the basis of this conclusion. Nor did his reasons indicate why the conclusion on the more limited range of evidence, with respect to the proper characterisation of the development proposal, was overwhelmingly clear so that a decision to the contrary was so plainly incorrect as to satisfy the stringent requirements of the Wednesbury unreasonableness test.

136 In Moolarben at [75] Moore AJ expressed the opinion that it was tolerably clear Spigelman CJ's analysis proceeded on the premise that the ground of Wednesbury unreasonableness should have been determined only by reference to the material before the decision-maker, which was to be contrasted with the approach to be taken in relation to defining the existence of a jurisdictional fact.

137 In my view, neither Woolworths nor Moolarben lay down an absolute rule that evidence not before the decision-maker can never in any circumstances be admitted in relation to the ground of manifest unreasonableness. I think that the rejection of evidence in Moolarben and the comments of the Chief Justice in Woolworths were made having regard to the content of the evidence and the circumstances of the case. This view of Woolworths is consistent with Spigelman CJ's favourable references in Murrumbidgee Groundwater at [133] - [137] to Minister v Austral Fisheries and Bienke v Minister where expert evidence was admitted: [130] - [131] above. This view of Moolarben is consistent with the fact that Moore AJ's specific point of disagreement with authority was only by reference to the decision in Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707, (2005) 148 FCR 446 at [457]. In that case Weinberg J said that in principle, albeit with some reluctance (having regard to the additional time and costs taken up with such evidence), he could see no reason why, in an appropriate case, expert evidence tendered to show that a decision (challenged on the ground of Wednesbury unreasonableness) was entirely reasonable, should not be admitted. In Moolarben Moore AJ did not have the benefit of being referred to Austral, Bienke and the substantial body of other authority, cited above, that expert evidence may be admitted in some circumstances.

138 The respondents submit that Minister v Austral Fisheries is distinguishable because the unreasonableness/irrationality challenge there was to the operation of the legislative instrument (the evidence sought to explain how a statistical formula set out in the instrument operated) and not to fact-finding that led to the making of the instrument. The distinction may be acknowledged but it does not follow that expert evidence is never admissible in relation to the latter in any circumstances. The respondents submit that Murrumbidgee Groundwater is distinguishable because a general relevance objection was not taken in that case. In Murrumbidgee Groundwater the Court of Appeal considered the expert evidence without the slightest suggestion that it was really irrelevant and should not have been admitted, and accepted the Federal Court authorities where expert evidence was admitted.

139 For these reasons, I conclude that if Mr Wade's evidence is admissible at all, it is only admissible in relation to the irrationality or manifest unreasonableness ground. Whether it is admissible depends upon more detailed consideration of the content of that ground and the content of his evidence to see precisely where they go, as well as the hydrogeological reports available to the Minister when he made his 2006 decision to make the Plan.

THE SCIENCE ISSUE: THE PLAN'S EXTRACTION LIMIT OF 83,700 ML/YEAR

140 The applicants' science case is put on the following grounds:

Ground 1. In making the Plan, there was a mandatory requirement under the 2000 Act that the Minister consider sustainable yield and recharge and this required the Minister to consider a sound and reliable numerical groundwater model to calculate the true and correct recharge and, thus, sustainable yield. The Ecoseal groundwater model, on which the Plan was based, was not sound and reliable because some of its parameters were unrealistic. In addition the Minister did not consider another mandatory requirement, protection of the water source.

Ground 2. In making the Plan, the Minister had regard to a prohibited irrelevant consideration, namely, the 2005 ASGE Agreement's targeted reduction in water entitlements.

Ground 3. The Minister's decision to make the Plan was manifestly unreasonable because the Plan's extraction limit of 83,700 ML/year was based on the Ecoseal model which was so flawed that it was irrational to adopt it, and because zones 1 and 2 were hydrogeologically separate from the rest of GWMA 016.

141 It is common ground, and I accept, as did the parties' expert witnesses, that the Ecoseal model contained erroneous and unreal calibrations in two respects that were identified by Aquaterra in its 2002 review of the Ecoseal model, namely, the storage coefficient and hydraulic conductivity and transmissibility.

142 In aid of their case, the applicants called evidence from an hydrogeologist, Mr Alan Wade. Mr Wade's written evidence comprises his first report dated 24 February 2012 to which the respondents' expert Ms Sue Hamilton replied in a report dated 20 November 2012, his second report dated 6 February 2013 in response to Ms Hamilton, a joint report with Ms Hamilton dated 8 March 2013, and two reports made after they concluded their concurrent oral evidence at the hearing, namely, their second joint report dated 11 April 2013 and his third report dated 15 April 2013 in which he heavily amended his first report in important respects.

143 The respondents objected to the admissibility of Mr Wade's evidence but, against the contingency that it was admitted, called evidence in reply from Ms Hamilton, who is a Department officer. The respondents' general objection is that expert evidence is irrelevant and therefore inadmissible in judicial review proceedings or at least in these proceedings.

144 The main science issue dividing the experts concerned the reliability of the Ecoseal model and whether it was rational to use it. Mr Wade thought it was useless in terms of advancing understanding of flux through the system. Ms Hamilton thought it was of low reliability but was the best available at the time.

Hydrogeological reports prior to the Minister's 2006 decision to make the Plan

145 In 1999 Mr Joseph Ross, an hydrogeologist, produced for the Department a draft report titled "Sustainable Yield Estimates for High Risk Aquifers in NSW". Mr Ross wrote:

One of the most basic pieces of data required for sensible management of a resource is the quantity of input to a system or "recharge". In the past, the quantity of recharge to an aquifer was accepted as an amount equivalent to the "safe yield" or quantity of water that could be removed from an aquifer artificially on a sustainable basis. We now understand that the "sustainable yield" of an aquifer is almost always a quantity that is considerably less than recharge so adequate provision for the environment can be made. Nevertheless, a sustainable yield figure is derived from a recharge determination. With this in mind, any sustainable yield study will always involve the determination of recharge as a first necessary step.

There is no nationally accepted definition for sustainable yield. The following working definition has been adopted for this report:

"SUSTAINABLE YIELD IS THAT PROPORTION OF THE LONG TERM AVERAGE ANNUAL RECHARGE WHICH CAN BE EXTRACTED EACH YEAR WITHOUT CAUSING UNACCEPTABLE IMPACTS ON THE ENVIRONMENT OR OTHER GROUNDWATER USERS."

146 The Ross report also contained the following. Recharge is difficult to estimate. Without detailed investigation, a high degree of accuracy is difficult to obtain. Where rigorous numerical models had been developed and had resulted in acceptable recharge figures, Mr Ross adopted these figures. Most systems, however, had not been modelled. In those cases, his inputs (recharge) were based on broad estimates of rainfall recharge and river recharge. For the Lower Murray Alluvium (GWMA 016), he estimated a sustainable yield of 136,000 ML/year for both the deep and shallow aquifers. Obviously, on his estimate, the sustainable yield for the deep aquifers (with which the Plan is concerned) must have been much lower than 136,000 ML/year; therefore Mr Ross' estimate may not be significantly different for the deep aquifers than the Plan's long term extraction component of 83,700 ML/year.

147 In November 2001 Ecoseal provided the Department with the final version of its groundwater flow model for GWMA016. Ecoseal noted: "Sustainable yield has been defined as the long-term average annual recharge to the aquifer, less a portion that is set aside for environmental purposes. The policy is intended to allow groundwater use without compromising the integrity of the aquifer or the surface ecosystems that it supports". In relation to the deep Calivil/Renmark aquifers, with which the Plan is concerned, Ecoseal concluded: "The sustainable yield for the Calivil/Renmark aquifers is based on total inputs for the deep aquifers and is estimated at 66 GL/year". Curiously, this statement is inaccurate in that under the Ecoseal model the sustainable yield of 66GL/year was only 90 per cent of total inputs. This can be seen in Ecoseal's Table 2.2 where pumping (described in that table as "Wells") is 66 GL/year and total inputs are 73 GL/year. The former is 90 per cent of the latter.

148 Later in November 2001, a Department hydrogeologist, Mr Mike Williams, reviewed the Ecoseal model and produced a memorandum. He criticised some aspects of the Ecoseal model. In particular, he considered that "the useable volume from zones 1, 2 will be higher for the Calivil/Renmark aquifer than determined by the model". He recommended that further work, including recalibration, be done on the Ecoseal model. Nevertheless, he concluded that the "model can be used to provide a 'ballpark' estimate' of sustainable yield and the quantitative relationship between water sources in the water balance". Mr Williams did not identify errors in the parameters of the Ecoseal model that were later identified by Aquaterra: [152(a)] below.

149 At a MGMC meeting on 18-19 December 2001 Mr Williams and an external consulting hydrogeologist, Professor Prathapar, gave a powerpoint presentation, by reference to which they proposed adjusting the Ecoseal modelled outputs for GWMA016 upwards to account for additional water that could be pumped from the eastern zones, zones 1 and 2. Mr Williams said that on this basis they believed the sustainable yield for the Calivil/Renmark aquifer was 84 GL/year. Mr Williams and Professor Prathapar were requested to provide a more formal memorandum.

150 Professor Prathapar attended to this in consultation with Mr Williams in a memorandum dated 21 December 2001. They estimated that if 60GL/year was pumped, net influxes would be 59 GL/year, indicating an equilibrium between pumping and inflows. They said that to this point of their analysis, the estimated sustainable yield was therefore 59 GL/year. I note that 59 or 60 GL/year are each less than 80 per cent of their estimated inflows of 77 GL/year. They then added 30.7 GL/year to compensate for the fact that the aquifer was larger in zones 1 and 2 than identified in the Ecoseal model. After making a further reduction of -6 GL/year, they calculated estimated sustainable year as 59-6+30.7 = 83.7 GL/year. They concluded: "In summary, the true ESY lies between 64.3 GL and 83.7 GL/year... Therefore we recommend that GMC adopt 84 GL as the maximum value for ESY, when developing the WSP".

151 Thus, the Ecoseal model, as adjusted by Mr Williams and Professor Prathapar, shows sustainable yield as significantly less than estimated inflows (recharge). Consequently, the assumption is inaccurate in the applicants' submissions and in the evidence of their expert witness, Mr Wade, that the adjusted Ecoseal model's estimated sustainable yield of 83,700 ML/year was 100 per cent of its estimated total inputs. The Plan itself reflects that inaccuracy because it creates the impression that 83,700 ML/year is 100 per cent of the average annual recharge and that this, together with the requirements for basic landholder rights (as defined) of 1525 ML/year (the estimate at the commencement of the Plan), equals the long term extraction limit and 100 per cent of the sustainable yield: cll 16, 32, Schedule 3 comments on SWMOP targets 1e and 11.

152 In May 2002 Aquaterra (per Mr Hugh Middlemis and Dr Charles Lawrence) presented to the Department a final draft review of the Ecoseal model and sustainable yield estimate. Aquaterra's main conclusions included the following:

 

(a) Ecoseal's estimated sustainable yield values are based on model predictions with unrealistically high storage parameters for large areas, which is not consistent with best practice. This can be remedied by adjusting the storage parameters to more realistic values and adjusting the transmissivity distribution and recalibrating. With these changes it is possible there may be little real change in the estimated sustainable yield estimates. It would be risky, without further model refinement, to adopt Ecoseal's estimates to determine long-term groundwater entitlements.

(b) Notwithstanding the unrealistically high storage parameters, the values determined for the Ecoseal study are considered by Aquaterra "to be of roughly the correct order."

(c) With a few notable exceptions, the Ecoseal model has been undertaken in a very thorough and comprehensive manner, and the methodologies applied provide a sound basis for quantifying groundwater resources and making groundwater management decisions.

(d) The estimated sustainable yield values, and as modified by Department staff since, are not sufficiently robust to be "permanently" adopted at present, as there are some potential problems that need to be accounted for.

(e) "While the ESY values proposed may be of the right order there are substantial risks associated with use...".

(f) It would be preferable to revise the model immediately to include as much physical reality as possible with respect to aquifer parameters, notably confined storage coefficients and aquifer transmissivity.

(g) However "a cogent argument could be mounted that the ESY values proposed by Ecoseal could be adopted as interim measure in an adaptive management process perhaps of two years, while the model is upgraded as recommended in this report...The model could then be used to determine a more accurate/reliable ESY, and entitlements revised accordingly".

153 No further modelling or model refinement was done.

154 The Department's October 2006 submission to the Minister for approval of the Plan stated: "The Lower Murray Groundwater Source has the best hydrological model available presenting a high confidence in groundwater recharge as set in the Plan". Whilst the reference to the "best hydrological model available" may be rationalised on the basis that the Ecoseal model was at that time the only model, the reference to "high confidence" is difficult to rationalise. It is inconsistent with the opinion, which I accept (if expert evidence is admissible at all), of the respondents' expert witness, Ms Hamilton, that the Ecoseal model was of low reliability because of the Aquaterra report and her own review of the model in relation to the parameters problem. The applicants put that Mr Digby Jacobs, the author of that Department submission who was closely involved with the development of the Plan, knew that it was not the best model available and knew that it was erroneous to proceed on the basis of "high confidence" in the recharge set in the draft Plan and, accordingly, the Minister must be taken to have also known. I do not propose to make any finding in relation to such knowledge because it is not pleaded and, in any event, misleading advice to a decision-maker is generally irrelevant to validity unless it amounts to fraud, which is also not pleaded: Oates v Attorney-General for the Commonwealth of Australia) [2001] FCA 84, (2001) 181 ALR 559 at [132]-[136] (Lindgren J); Vasiljkovic v O'Connor [2010] FCA 1246, (2010) 276 ALR 326 at [95] (Edmonds J); McHugh Holdings Pty Ltd v Director General Communities NSW [2009] NSWSC 1359 at [66] (Hoeben J).

The expert evidence at the hearing

155 In Mr Wade's first report he summarised its scope as being his:

assessment of whether the information and interpretations of the conceptual hydrogeology in existing documents, including interpretation of water balance (ie the rate of inflow/recharge to and outflow/discharge from the groundwater flow system in the study area), support the groundwater management strategy that has been implemented. It assesses whether there are significant inconsistencies between hydrogeological interpretations before and after the Plan was written. It addresses the appropriate conceptual hydrogeology and water balance.

156 In Mr Wade's first report at 5.37, he estimated the sustainable yield for GMWA 016 at 128 GL/year based on the CSIRO's Southern Riverina Plains Groundwater Model 2008. The CSIRO model covered an area approximately twice the size of GMWA 016. Table 4 in Mr Wade's first report shows that the total inflows/recharge for the Calivil/Renmark aquifers in GMWA 016 on the CSIRO model were 296 GL/year compared with 86 GL/year under the Ecoseal model. Table 4 shows in relation to the CSIRO model that if 79GL/year is pumped out, then the net total inflows would equal the total outflows (including that pumping volume of 79 GL/year). Mr Wade in his first report did not draw any conclusion as to sustainable yield from Table 4. Rather, he stated at 5.3.2 and 5.4 that at a 2010 conference Mr Barnett, an author of the CSIRO model, presented (based on the CSIRO model) the estimated long term average "sustainable diversion limit" (SDL) (a term introduced by the Water Act 2007 (Cth)) for GMWA 016 of 102 GL/year, which incorporated a precautionary principle discount. Mr Wade thought the validity of that discount was questionable and disregarded it to make his own estimate, based on the CSIRO model, of 128 GL/year. In my view, it is evident that in his first report he equated SDL with estimated sustainable yield. For example, he wrote that the "current SDL of 83.7 GL/year [in the Plan] is based on a groundwater model (the GWMA 016 model) that is fundamentally flawed and a methodology for calculating the SDL from that model is also flawed. The model was not recalibrated or refined, although it states in the Plan that it will be" (at 5.4). Significantly, he continued at 6.2:

6.2 Basis of the Water Sharing Plan

• The current SDL of 83.7 G/yr for GWMA 016 is based on the inflows to GWMA 016 estimated from the 2001 GWMA 016 Model (ecoseal, 2001). However, the technical quality of the GWMA 016 Model (ecoseal, 2001) is not adequate to be used for the management of groundwater resources in this area, or to support the groundwater management strategy that has been implemented.

• The level of confidence associated with the GWMA 016 Model (ecoseal, 2001), and consequently, the level of certainty associated with any estimate of a Sustainable Diversion Limit (SDL) using this model, is very low. If model problems had been addressed with the improvements recommended by Aquaterra (2002), the level of certainty would have been increased significantly. However, this was not attempted. The Plan was based on a model which was flawed.

• The SRP Model (CSIRO, 2008) is considerably more realistic than the GWMA 016 Model for several reasons and, as a result, is a more reliable and appropriate tool for evaluating SDLs. These reasons include more appropriate boundary conditions, more appropriate aquifer properties and distribution of aquifer properties, and greater certainty regarding groundwater extractions for the calibration period. The SRP Model is a considerably more appropriate model to use to evaluate the SDL for the area than the GWMA 016 model.

• In 2010, the SRP Model was used to produce a best estimate of the SDL for GWMA 016 of 128 GL/yr, which is approximately 50% greater than the figure in the Plan. Due to the level of confidence associated with the SRP model in comparison to the GWMA 016 Model, the author considers this estimate to be a reasonable estimate with greater confidence associated with it. Therefore, this author considers the SDL of 83.7 GL/yr that was adopted in the Plan to be erroneous by a factor of approximately 50%.

157 The CSIRO report made the following comments in relation to both deep and shallow pumping when reaching a conclusion about the level of extraction without unacceptable environmental impacts (emphasis added):

Lower Murray SDL unit calibration period

There has been a distinctive declining trend in groundwater levels across the Lower Murray region since the mid 1990s. Near the centre of the drawdown, near Deniliquin..., levels in the Calivil Formation have fallen in excess of 20 m since 1994. This represents a significant mining of the resource with the drawdown rate of over 1 m per year. The cause of the drawdown is likely to be a combination of reduced recharge - climate and irrigation driven - and the significant rise in irrigation pumping in the mid to late 1990s. Groundwater pumping from the Lower Murray SDL unit has averaged approximately 108 GL/year post 2000, including shallow pumping. However, pumping peaked at over 160 GL in 2002/03 and approximately 140 GL in 2007/08. Both of these peaks are observable as significant declines in regional groundwater levels in historical record. This data suggests that rates of extraction post 2000 have been unsustainable in the modern dry climate.

158 CSIRO's opinion that average pumping of 108 GL/year, including shallow pumping, was unsustainable suggests that average pumping relating only to the deep aquifers (with which these proceedings are concerned) was also unsustainable. Viewed through the prism of sustainability, this suggests that the 83.7 GL/year adopted in the Plan for the deep aquifers alone was not unreasonably low, if low at all.

159 The definition of "sustainable diversion limit" adopted by Mr Wade in his third report is:

the maximum long term annual average quantity of water that can be extracted without unacceptable impacts to groundwater levels and fluxes, groundwater-dependent baseflow in rivers and streams, the productive potential of the aquifer and groundwater salinization.

160 Ms Hamilton adopted in her initial report in reply to Mr Wade's first report, and Mr Wade later adopted, the following definition of "sustainable yield":

That proportion of the long term average annual recharge which can be extracted each year without causing unacceptable impacts on the environment or groundwater users.

161 Ms Hamilton said in her initial report in reply to Mr Wade's first report that:

 

(a) The basis of using the Ecoseal model to determine sustainable yield was to identify that point at which maximum pumping volumes matched changes to net storage. Mr Wade had not criticised that basis but criticised use of the Ecoseal model to determine the water balance under this pumping scenario and the subsequent modification to the water balances for zones 1 and 2.

(b) Mr Wade had not identified any shortcomings of the Ecoseal model that had not been identified by Mr Williams in 2001 and Aquaterra in 2002.

(c) The Williams and Aquaterra reviews of the Ecoseal model identified that the aquifer geometry adopted for zones 1 and 2 under-represented the actual area extent of the aquifer outcrop and the aquifer width. This resulted in the direct recharge impacts and aquifer inflows being underestimated. Adjustments were made by Mr Williams and Professor Prathapar to address this under-estimation. It was reasonable to adjust the Ecoseal model outputs instead of refining and rerunning the Ecoseal model.

(d) On the basis of the Ecoseal model as adjusted, the decision to use an average annual recharge of 83,700 ML/year in the Plan was not unreasonable or irrational.

(e) She had been instructed not to respond to those portions of Mr Wade's report that referred to the CSIRO model because it was based on information that was not available when the decision to make the Plan was made.

162 In Mr Wade's second report dated 6 February 2013 in reply to Ms Hamilton, he stated that his opinion of the Ecoseal model was not based on the CSIRO model but on the Williams and Aquaterra reviews and his own review, and that he had only used the CSIRO model in his first report to provide an estimate of the water balance and to demonstrate the consequences in the output of the Ecoseal model (i.e. the water balance) resulting from the problems identified by Mr Williams and Aquaterra. Whether or not this statement was prompted by Ms Hamilton's point that the CSIRO model post-dated the making of the Plan, I must say it is contrary to the impression that I have of his first report, particularly at [6.2] where he appeared to adopt 128 GL/year based on the CSIRO model: see [156] above.

163 In Mr Wade's second report he also said that:

 

(a) he disagreed with Ms Hamilton's opinion that it was reasonable to adjust the Ecoseal model outputs rather than refining and re-running the Ecoseal model;

(b) the 2001 adjustments to the Ecoseal model did not address the fundamental problems with that model.

164 In the first joint report of Mr Wade and Ms Hamilton, Mr Wade opined that in order to comply with s 5(2)(d) of the 2000 Act, a numerical groundwater model was required for the Lower Murray Groundwater Source given its complex hydrogeological nature, because a numerical model is the only tool that can be used to simulate the effect of groundwater extraction of such a system, and, thereby, to simulate and predict the cumulative impacts of groundwater extraction on the groundwater resource. Section 5(2)(d) sets out one of the water management principles: "the cumulative impacts of water management licences and approvals and other activities on water sources and their dependent ecosystems, should be considered and minimised". Ms Hamilton did not agree that such a model was necessary and confirmed her opinion that it was not irrational or unreasonable to utilise the Ecoseal model to inform the government of the long term extraction limit in the Plan. Mr Wade was of the opinion that it was unreasonable and irrational to do so without first recalibrating the Ecoseal model. While Ms Hamilton did not agree that such a model was necessary, she did agree that it was a tool to simulate the effects of various pumping regimes that can be used to inform the decision. In oral evidence she conceded that a numerical model is the only tool that can be used to simulate the effects of groundwater extraction, and to simulate and predict in detail (when looking at the inter-layer flows) the effects of groundwater extraction on the system and on recharge. However, she qualified this by saying that numerical models have been developed for only about ten of the approximately 200 water sources in New South Wales, and there have been water sharing plans developed without models including for two of the six major valleys where recharge was set on estimates of rainfall infiltration and river recharge, being the methodology adopted in the 1999 Ross report.

165 After the experts' concurrent oral evidence concluded, Mr Wade produced his third report, which radically amended his first report by putting a line through those parts of [5.4] and [6.2] referred to or quoted above at [156].

166 The definitions adopted in the proceedings of "sustainable yield" (used in the Ecoseal report and the Plan) and "sustainable diversion limit" (used in the CSIRO model) have been set out above at [159] - [160]. Both depend on avoiding unacceptable impacts. The definition of sustainable diversion limit is more prescriptive in setting out what the unacceptable impacts are. The result is that SDL and sustainable yield perform the same function for regulatory policy: they describe the volume of water that can be extracted without causing unacceptable environmental impacts. Although they are not identical expressions, for present purposes I think they are sufficiently similar as to be able to accept the comparison made by Mr Wade in his first report between the CSIRO's 128 or 102 GL/year and the Plan's 83.7 GL/year.

167 In oral evidence, Mr Wade agreed, consistently with his first report, that the 2010 CSIRO methodology suggested a 50 per cent higher sustainable yield than under the Ecoseal model. It later emerged in oral evidence through Ms Hamilton, that Mr Wade was incorrect in assuming that the figures of 128 GL/year and 102 GL/year derived from the CSIRO model related only to the deep confined aquifers (with which the Plan is concerned) and not the shallow Shepparton formation above 12 metres in depth (with which the Plan is not concerned). In fact, as Mr Wade came to accept in oral evidence and in the subsequent joint report which they produced, those figures related to both the deep and shallow aquifers. When the CSIRO undiscounted 128 GL/year figure is broken down, 91.88 GL/year thereof relates to the deep aquifers. That figure is sufficiently close to the Plan figure of 83.7 GL/year as to be of no consequence for present purposes. If the CSIRO precautionary principle of 102 GL/year were to be adopted and broken down, the extraction limit for the deep aquifers would be less than the Plan figure of 83.7 GL/year.

168 It may be noted that for the deep and shallow aquifers combined, the CSIRO estimate of 102 GL/year and Mr Wade's estimate of 128 GL/year are both less than the Ecoseal estimate of 146 GL/year.

169 The experts' oral evidence also included the following:

 

(a) They agreed that the main issue between them was the reliability of the Ecoseal model and whether it was rational to use it. They agreed that it had the flaws identified by Aquaterra and Williams/Prathapar. Mr Wade opined that it was unreliable and irrational to use it because of those flaws. Ms Hamilton opined that because of those flaws the Ecoseal model had low reliability but that it was the best available at the time and did provide information which could be considered when setting extraction limits.

(b) As Ms Hamilton said, that there are over 200 groundwater sources in NSW for which extraction limits are set. They have had different assessments of recharge, from simple rainfall assessments through to the more complicated ones that involve modelling. As at 2006 only about five had been modelled and since then only another five had been modelled. Of the six water sharing plans that commenced in 2006 for the six major valleys, two did not have models. Mr Wade was aware that recharge can be estimated from rainfall and river recharge without a model but thought that such an estimate was quite limited.

(c) Because of the flaws in the Ecoseal model, Mr Wade did not think it advanced understanding of the flux through the system. Ms Hamilton considered that it did.

(d) Mr Wade disagreed, and Ms Hamilton agreed, with Mr Williams' view that the Ecoseal model can be used to provide a "ballpark" estimate of sustainable yield and the quantitative relationship between the water sources and the water balance.

(e) Mr Wade disagreed, and Ms Hamilton agreed, with Aquaterra's assessment that Ecoseal's estimated sustainable yield values "may be of the right order". Ms Wade thought there was a huge uncertainty about the flux that came out of the Ecoseal model.

(f) The experts agreed with Aquaterra's statement that the values determined for the Ecoseal study are considered to be of "roughly the correct order". But Mr Wade asserted that "correct order" means not ten times less or ten times more. Ultimately, however, he agreed that Aquaterra was saying it was nearer to 80 than to 8 or 800.

(g) Mr Wade considered that the Ecoseal model should have been recalibrated before it was used. Ms Hamilton considered that it would have been preferable to have recalibrated it before it was used.

(h) Mr Wade opined that it was manifestly unreasonable to use the Ecoseal model as the basis of the Plan because it had not been recalibrated and was so unreliable. Mr Hamilton opined that it was not unreasonable to use the Ecoseal model outputs as amended by Mr Williams and Professor Prathapar, even though it provided a low reliability number.

(i) Mr Wade opined that it was unreasonable and irrational to use the Ecoseal model because of the uncertainty associated with its flux output. Ms Hamilton agreed that there was uncertainty associated with the flux but disagreed that it was unreasonable and irrational to use it.

(j) The experts agreed that zones 1 and 2 are hydrogeologically distinct from the rest of GWMA 016 and more closely associated with the adjacent GWMA 015. They agreed that adjustments were made to deal with the zone 1/zone 2 issue by Mr Williams and Professor Prathapar adding additional flux to compensate for the fact that in the Ecoseal model the aquifers did not extend into those zones as far as they do in reality. Mr Wade thought that this compounded the storage coefficient flaw in the model.

(k) Although the Ecoseal model had flaws, Ms Hamilton considered that it got the sustainable yield roughly right having regard to the later CSIRO model's conclusion of an extraction limit for both the deep and shallow aquifers of 128 GL/year which was scaled down to 102 GL/year. Mr Wade disagreed. However, he did not know whether the approximately 30 per cent of flux adopted as the extraction limit in the CSIRO model was reasonable without reviewing all the work that went into deciding to adopt 30 per cent. He later said that his "initial reaction" was that it was not reasonable for CSIRO to pick only 30 per cent of flux through the system as sustainable yield: thus, it seems that his initial reaction, as opposed to his considered opinion, was that CSIRO got it wrong.

170 The applicants submit that Mr Wade's evidence was that the Ecoseal report underestimated the recharge and sustainable yield by 300 per cent to 400 per cent based on Table 4 in his first report. The submission equates sustainable yield with gross inflow/recharge and adopts Mr Wade's Table 4 ratio between CSIRO inflows/recharge of 296 GL/year and the Ecoseal inflows/recharge of 86 GL/year. The submission is in part implicitly based on Mr Wade's considerable amendments to his first report, specified in his third report produced after his oral evidence had concluded, since it is very difficult, if not impossible, to reconcile the submission with his unamended first report. Contrary to the applicants' submission, when cross-examined, Mr Wade's evidence was that he was not suggesting that one could sustainably pump 296 GL/year. Later, after Mr Wade's error to which I have referred was revealed through Ms Hamilton in oral evidence, Mr Wade said that he no longer adhered to his evidence that the Plan was erroneous by a factor of 50 per cent and said that if the Ecoseal model had been constructed within the parameters of the CSIRO model, the flux would have been about three times as great (296 compared with 102) applying the Plan's 100 per cent methodology, and that therefore the Plan's sustainable yield or long term extraction limit would have been three times as great as it is. However, he also said that if the 30 per cent sustainable yield methodology of the CSIRO model were adopted, then the extraction limit would be 128 GL/year. The latter, it seems to me, was the approach he took in his first report at [6.2].

171 Given the course of Mr Wade's evidence, I think that particular care is required in assessing his opinion that the Plan's figure of 83.7 GL/year was irrational.

172 The applicants submit that (a) one must compare apples with apples, namely, 296 GL/year being 100 per cent of inflows under the CSIRO model and 83.7 GL/year being 100 per cent of inflows in the Plan and in the Ecoseal model (as adjusted); (b) therefore, if sound modelling, as in the CSIRO model, had been carried out for the Minister before the Minister made the Plan, the Minister would have accepted 296 GL/year inflows in Table 4 based on the unflawed CSIRO model as the appropriate extractable limit rather than the 83.7 GL/year in the Plan based on the flawed Ecoseal model, or at least would have realised the latter was so deeply flawed that the Minister would not have adopted it.

173 I do not accept the applicants' submission. Contrary to the assumption of the applicants and Mr Wade, neither Ecoseal nor Mr Williams and Professor Prathapar nor, therefore, the Plan adopted a long term extraction limit which equalled 100 per cent of sustainable yield: see [150] - [151] above. In any event, if it is relevant (contrary to my view) to consider what the Minister would have done if presented with a CSIRO model or equivalent that did not exist when he made the Plan, I think he probably would have accepted the CSIRO assessment of 102 GL/year, at most, or 128 GL/year for the deep and shallow aquifers combined, and a figure for the relevant deep aquifers alone which would have been similar to or less than the Plan's 83.7 GL/year: see [156], [167], [168] above.

174 Also relevant to the irrationality issue is the conclusion in the Aquaterra report that "a cogent argument could be mounted that the ESY values proposed by Ecoseal could be adopted as interim measures in an adaptive management process perhaps of two years, while the model is upgraded as recommended in this report...The model could then be used to determine a more accurate/reliable ESY, and entitlements revised accordingly". Something roughly along these lines, albeit over ten years rather than two, was adopted in the Plan in a note after cl 15: "During the term of this plan, the Groundwater Management Model for GWM A016 will be recalibrated and refined. The Natural Resources Commission will consider any resulting changes to the estimated recharge figure when undertaking their review of the Plan (outlined under cl 58)". Clause 58 provides in a note that the Natural Resources Commission must review the Plan prior to any decision to extend its term or make a new plan.

Ground 1: Mandatory Relevant Considerations

175 Ground 1 is that in making the Plan it was impliedly mandatory under the 2000 Act for the Minister to take into account sustainable yield and recharge by using a sound and reliable numerical groundwater model to identify the true and correct recharge and thus sustainable yield, and it was then his duty to reduce the extraction limit so it did not exceed the sustainable yield.

176 The applicants contend that the alleged implication arises having regard to the objects of the 2000 Act in s 3(c), (e) and (g), the water sharing principles in s 5(2)(d) and (h), the duty in s 9(2), and the requirements of a SWMOP in 6(3). They refer to statements in two intergovernmental agreements: the 1994 COAG Agreement's statement that "Environmental requirements are to be determined on the best scientific evidence available", and a statement in the 2004 inter-governmental Agreement on a National Water Initiative that "selling the trade-offs between competing outcomes for water systems will involve judgments informed by the best available science". They also refer to statements in the 1999 Ross report that "one of the most basic pieces of data for sensible management of a resource is the quantity of input to a system or recharge" and that "a sustainable yield figure is derived from a recharge determination". The applicants' quotations from the Ross report omit by use of an ellipsis Mr Ross's words: "We now understand that the 'sustainable yield' of an aquifer is almost always a quantity that is considerably less than recharge so adequate provision for the environment can be made". The applicants also say that the evidence of the experts, Mr Wade and Ms Hamilton, as well as the cross-examination of Mr Jacobs, a government official closely involved with the development of the Plan, confirms that scientific evaluation must be by "sound numerical modelling".

177 The applicants apparently seek to bolster this by submitting that the respondents admit in paragraph 15(e) of their Defence that the Minister had a duty to provide for "sustainable and integrated management", which the applicants submit includes sustainable yield. I disagree. In paragraph 15(e) of the respondents' Defence they merely said that the objects of the Act are set out in s 3 and are to provide for the sustainable and integrated management of the water sources for the benefit of present and future generations and, in particular, the matters listed in s 3(a) - (h).

178 The applicants submit that the Minister failed in his duty because the Ecoseal model (as adjusted) on which the Plan was based was not sound and reliable but was flawed to the extent opined by Mr Wade that it underestimated sustainable yield and recharge by 300 to 400 per cent.

179 The respondents submit that s 9 of the 2000 Act is only "exhortatory": Onesteel Reinforcing Pty Ltd v Sutton [2012] NSWCA 282 at [79] (Allsop P), Capital Airport Group Pty Ltd v Director-General of the NSW Department of Planning [2011] NSWLEC 22 at [4] (Biscoe J), and Telstra Corporation Ltd v Australian Competition and Consumer Commission [2008] FCA 1436, (2008) 171 FCR 174 at [164] (Lindgren J). I do not accept the respondents' submission. The form of s 9 could hardly be clearer in imposing on the Minister, when making the Plan, a "duty" to do the things to which it refers, including "take all reasonable steps to do so in accordance with, and so as to promote, the water management principles" (in s 5) and to do so "in a manner that gives effect to" the SWMOP.

180 Having regard to s 9(1) and 5(2)(g) of the 2000 Act, I accept there is a statutory implication that it is mandatory for the Minister to have regard to the water management principles when making a plan.  It is clear from the evidence and the terms of the Plan itself that the Minister did consider sustainable yield and recharge.  However, the Minister is not bound to achieve any end to which the water management principles are directed, being principles that need to be balanced to some extent. That is apparent from the language of "take all reasonable steps" in s 9(1)(a) and the introductory word "Generally" in s 5(2).

181 I do not accept the applicants' submission that any duty on the Minister rose to the level of a duty to establish "a sound and reliable" groundwater model or to identify a "true and correct" recharge. The injection of such standards would have the effect of introducing unpleaded objective jurisdictional facts ("sound and reliable" and "true and correct"), that the Court would then have to determine on the evidence before it. The 2000 Act does not mandate any particular method of analysis of recharge or sustainable yield. It does not dictate that the method of analysis must include a numeric groundwater model, let alone one that is "sound and reliable" and achieves a "true and correct" recharge. Although it is not a mandatory statutory obligation to carry out modelling, there was a model in this case.

182 To the extent that the applicants rely on the opinions of experts as to what the Act requires, such opinions are irrelevant. In any case, Ms Hamilton denied that modelling was required under the 2000 Act. To the extent that the cross-examination of Mr Jacobs is relied on to establish that the MGMC (an advisory body) wanted a rigorous model, this does not make it a mandatory requirement under the Act. To the extent that the applicants rely on inter-governmental agreements, such agreements do not establish that modelling was a mandatory requirement under the 2000 Act, nor does Mr Ross' report.

183 The applicants also submit that the Minister had a "duty to provide for the orderly, efficient and equitable sharing of water from the water source" and to consider that issue. The mandatory nature of the obligation is said to arise from the object in s 3(e) of the 2000 Act "to provide for the orderly, efficient and equitable sharing of water from water sources", the reference to "sustainable and efficient use" in the object in s 3(c), the water management principles in s 5(4), and the core provisions in s 20(1)(e). The applicants submit that the best evidence of the Minister's considerations is the Department's submission memorandum to the Minister of October 2006, just prior to the making of the Plan, and that it does not refer to "efficient use" or "equitable sharing". The applicants submit that the history of use sharing methodology in the Plan was inequitable.

184 These submissions appear to be premised upon the applicants' view of what is equitable. It is apparent that the Minister had a different view. That does not mean the issue was not taken into account. Moreover, "considerations of equity are quintessentially matters for political decision-making" and may be "of a character inappropriate for judicial review", as I think they are in this case: Murrumbidgee Groundwork Reservation Association Inc v Minister for Natural Resources [2005] NSWCA 10, (2005) 138 LGERA 11 at [144], [151] per Spigelman CJ (Beazley and Tobias JJA agreeing).

185 Finally, the applicants contend that the Minister failed to consider a mandatory requirement, being protection of the water source, in circumstances where Mr Wade's opinion (based on the later CSIRO model) was that the actual recharge generally exceeded the recharge in the Plan, thereby permitting the water table to rise with increased salinity. In my opinion, as discussed earlier, neither expert evidence nor later modelling is admissible in relation to the mandatory relevant considerations ground at least in the circumstances of this case. If I am in error, then, in any event, as discussed earlier, the CSIRO calculation of sustainable yield at about 30 per cent of its estimated recharge roughly supports Ecoseal's and the Plan's sustainable yield of 83,700 ML/year for the deep aquifers. The fact that the latter was based on a much higher percentage of recharge (or even if it was 100 per cent of recharge as the applicants contend, in my view erroneously) is not significant for present purposes (although it could be taken into account by the Minister when reviewing the Plan or its merits: see [203] below).

186 For these reasons, I do not accept Ground 1 of the applicants' science case.

Ground 2: Mandatory Irrelevant Consideration

187 Ground 2 is that in making the Plan the Minister had regard to a prohibited irrelevant consideration: history of extraction and the 2005 ASGE Agreement's targeted reductions in entitlements. The applicants put a merits submission that the history of extraction methodology in the Plan for determining licence holders' extraction entitlements is "neither efficient nor equitable", and that this is best evidenced by the State's argument for across-the-board cuts in the Murrumbidgee Groundwater case. This is similar to a submission of the applicants put under Ground 1.

188 In Murrumbidgee Groundwater, one of the complaints of the farmer applicants was that across-the-board cuts were unfair. On the other hand, for example, the Murray GMC told the Minister it supported the history of use methodology: see [41] above. In my opinion, there is nothing in the statutory scheme to indicate that either methodology is a prohibited consideration. As discussed earlier, there will be winners and losers whichever methodology is adopted.

189 The ASGE agreement's targeted reduction for the Lower Murray was 167,000 ML/year (or 68 per cent): see cl 1.8e of the ASGE Agreement quoted above at [49]. The applicants submit that the targeted reductions were a prohibited consideration because, first, s 9(2) of the 2000 Act imposes a duty on the Minister to exercise his functions under the Act "in a manner that gives effect to the [SWMOP]"; secondly, the SWMOP was made in 2002; thirdly, by s 6(3) of the 2000 Act the SWMOP had to be consistent with governmental obligations arising under any inter-governmental agreement to which the government is a party; and, fourthly, this does not include inter-governmental agreements made after the SWMOP is made.

190 In my opinion, the fact that it is mandatory for the SWMOP to have regard to inter-governmental agreements existing when the SWMOP is made does not lead to the conclusion that the Minister is prohibited from having regard to a later inter-governmental agreement when making a later water sharing plan, at least if it is not inconsistent with the SWMOP. Inter-governmental agreements are not mandatory irrelevant considerations: Arnold v Minister Administering the Water Management Act 2000 [2010] HCA 3, (2010) 240 CLR 242 at [49], [78].

191 In any case, the reduction amount for the Lower Murray specified in the ASGE Agreement was the amount identified by the State following the Ecoseal model as adjusted. The Plan draws upon the same model as the ASGE Agreement. There can be no mandatory requirement to not have regard to the modelling engaged in by the State. That the modelling also informs the ASGE Agreement does not make it a mandatory irrelevant consideration.

192 For these reasons, I do not accept Ground 2 of the applicants' science case.

Ground 3: Irrationality or manifest unreasonableness

193 Ground 3 is that the Plan manifested irrationality in both reasoning and fact finding or was manifestly unreasonable because the Plan's extraction limit of 83,700 ML/year was based on the Ecoseal model which was so flawed as to be irrational.

194 In my view, material constructively before the Minister when he made the Plan included the Ross report, the deliberations of the MGMC, the Ecoseal report, Mr Williams' memorandum of November 2001, Professor Prathapar's memorandum of December 2001 and the Aquaterra review. The upshot is that the Minister had before him expert opinions from hydrogeologists, Mr Williams and Professor Prathapar, and to a lesser extent Aquaterra, that while the Ecoseal model on which the 83,700 ML/year figure was based had deficiencies and should be refined and upgraded, the figure was in the right order and at least sufficient for relatively short term management purposes. In my opinion, adoption of that figure in the Plan, for a period of about 10 years, after receiving the reports of experts, albeit subject to qualifications, cannot be regarded as irrational or illogical such that the legislature never intended to give the Minister power to make the Plan on that basis. This conclusion is not dependent on but is fortified by the oral evidence of Mr Jacobs indicating, apparently, that following the Aquaterra review, the Department's internal hydrogeologists advised that it would not be unreasonable to adopt that figure.

195 In my opinion, Mr Wade's evidence is inadmissible insofar as it introduced the CSIRO model because that model post-dated the making of the Plan and therefore did not form part of the material available to the decision-maker, and insofar as his opinion that the adjusted Ecoseal model's 83,700 ML/year extraction limit was irrational was based on the CSIRO model. The circumstances of this case are not such as to admit evidence of the CSIRO model and his opinion thereon by way of exception to the general principle that this ground of judicial review should be decided on the material before the Minister. If this evidence were to be admitted, I think that the Court would be engaging in impermissible merits review based on the evidence at the hearing.

196 However, if I am in error it is of no consequence because, in my opinion, whether one has regard to the expert evidence or not, the ground of manifest unreasonableness or irrationality has not been made out.

197 If the science is considered without regard to the expert evidence, a summary would include the following: (a) Ecoseal produced a flawed model which showed a sustainable extraction limit of 66 GL/year; (b) Professor Prathapar and Mr Williams adjusted this for flaws in relation to zones 1 and 2 to estimate an extraction limit of 83.7 GL/year (rounded to 84); (c) Aquaterra, whilst identifying further flaws in Ecoseal that made it risky to adopt Ecoseal's estimates, did not propose an alternative extraction limit and considered that the Ecoseal values were of roughly the correct order and that a cogent argument could be mounted that those values be adopted as interim measures in an adaptive management process perhaps of two years while the model is upgraded; (d) the Plan adopted a long-term extraction limit of 83.7 GL/year (plus an estimated 1.525 GL/year for "basic landholder rights" as defined, at the commencement of the Plan); and (e) the Plan required the Ecoseal model to be recalibrated and refined during its term. In my judgment, on the basis of the scientific material available when the Minister made his decision, the 83.7GL/year figure could not be regarded as irrational and it was not manifestly unreasonable for the Minister to make the Plan with that 83.7 GL/year figure as the main component of the long term extraction limit.

198 If one alternatively looks at the science after adding in the expert evidence adduced at the hearing, an additional summary would include the following: (a) Mr Wade and Ms Hamilton agreed with the flaws in the Ecoseal model identified by Williams/Prathapar and Aquaterra; (b) Mr Wade considered the Aquaterra model to be useless and irrational whereas Mrs Hamilton considered it to be of low reliability; (c) the CSIRO model indicated that the sustainable diversion limit (which, as I have said, is sufficiently similar, for present purposes, to sustainable yield) was 102 GL/year for both the deep and shallow aquifers; (c) in his first report Mr Wade appeared to accept this but thought it was too conservative and increased it to 128 GL/year; (d) the CSIRO report considered that the average groundwater pumping of approximately 108 GL/year post 2000 "including shallow pumping" was unsustainable; (e) the CSIRO 102 and 128 GL/year figures when broken down to apply to the deep aquifers, with which this case is concerned, result in figures that are respectively less, or not significantly more, than the 83.7 GL/year in the Plan; (f) Mrs Hamilton opined that in light of the CSIRO report the Plan's extraction limit of 83.7 GL/year was not manifestly unreasonable or irrational; (g) Mr Wade took the opposite view but was unable to say whether the CSIRO's approximate 30 per cent of its own estimated inflows as the extraction limit was reasonable without considering the material that led CSIRO to that conclusion (although his initial reaction to the question was that it was not); and (h) Mr Wade (like the applicants) was in error in assuming that Ecoseal adopted an extraction limit which was 100 per cent of sustainable yield.

199 The applicants submit that the Minister's decision to make the Plan was completely unreasonable because he knew or ought to have known that the Ecoseal model was completely unsound and unreliable. I disagree. Aquaterra, Mr Williams and Professor Prathapar had given the Ecoseal model a significant measure of support. If it is relevant to have regard to the expert evidence at the hearing, so did Ms Hamilton. The CSIRO extraction limit based on an approximate ratio of 30 per cent of inputs supports the Ecoseal based extraction limit based on a higher ratio. The only expert who has expressed an opinion which supports the applicants' characterisation of the Ecoseal model is Mr Wade. However, Mr Wade was not prepared to say that the CSIRO extraction limit ratio was unreasonable without looking at the CSIRO material on which its ratio was based. The applicants submit that I should prefer Mr Wade's evidence to that of Ms Hamilton notwithstanding the flaws they identified in it. If it is relevant to consider the opinions of Mr Wade and Mrs Hamilton insofar as it is based on the material before the Minister, and if I have to choose between them, I would prefer Ms Hamilton. Her view is closer that of Mr Williams, Professor Prathapar and Aquaterra. As discussed earlier, Mr Wade shifted his evidentiary position in important respects.

200 Even if the expert evidence is taken into account, I am not satisfied that it has been demonstrated that the figure of 83.7 GL/year in the Plan was irrational or such as to make the Plan manifestly unreasonable, even though there were flaws in the Ecoseal model from which it was partly derived.

201 The applicants also submit that it was manifestly unreasonable or irrational to adopt a recharge figure having a foundation in areas (zones 1 and 2) which were "hydrogeologically separate valleys" in circumstances where these flaws were recognised. I do not accept the submission. There was a poor groundwater connection between zones 1 and 2 and the rest of GWMA 016 and a good groundwater connection between those zones and the adjacent GWMA 015. In the Ecoseal model the aquifers in GWMA 016 did not extend as far as they do in reality. In order to compensate for this, in 2001 Mr Williams and Professor Prathapar added flux for zones 1 and 2. Their treatment of zones 1 and 2 was clearly rational. I can see nothing in relation to zones 1 and 2 on which to base a conclusion of manifest unreasonableness or irrationality. "The breadth of the Minister's powers under s 50 is such that the making of a plan is not to be constrained by matters such as limits on interconnectivity": Murrumbidgee Groundwater [2005] NSWCA 10 (2005) 138 LGERA 11 at [141] per Spigelman CJ.

202 For these reasons, I do not accept Ground 3 of the applicants' science case.

203 I would add a merits observation. When the Ecoseal model is recalibrated and refined, as cl 15 of the Plan notes that it will be, or if the Plan is otherwise reviewed on its merits by or on behalf of the Minister, no doubt it would be appropriate to give consideration to the CSIRO model that post-dated the creation of the Plan when determining whether the Plan's extraction limit might be increased. That would of course be a merits review, in which the Court cannot engage.

THE SOCIO-ECONOMIC ISSUE

204 The applicants socio economic case is that:

 

(a) The Minister was bound to have due regard to socio-economic impacts of the proposed Plan: ss 18(1) and 50(2A) of the 2000 Act. This required that socio-economic impacts be assessed in a formal study or at a farm-by-farm level. Supporting this construction is s 5(2)(g) which required the Minister to maximise "the social and economic benefits to the community" and s 20(1)(c) which required the water sharing provisions of the Plan to deal with "the identification of requirements for water extraction under access licences";

(b) No formal socio-economic study or on a farm-by-farm basis was conducted and the Minister thereby failed to properly consider the socio-economic impacts of the Plan.

 

205 By s 50(2A), s 18 applies to a Minister's Plan. Sections 18(1), 5(2)(g) and 20(1)(c) provide:

18 Matters for consideration

(1) In formulating a draft management plan, the management committee must have due regard to the socio-economic impacts of the proposals considered for inclusion in the draft plan.

5 Water management principles

...

(2) Generally:

...

(g) the social and economic benefits to the community should be maximised, and

...

20 Core provisions

(1) The water sharing provisions of a management plan for a water management area or water source must deal with the following matters:

...

(c) the identification of requirements for water for extraction under access licences,

...

206 In my opinion, as the respondents accept, by reason of ss 18(1) and 5(2)(g) the Minister was bound to have due regard to the socio-economic impacts of the proposals considered for inclusion in the Plan.

207 I do not accept the applicants' submission that the Minister was under a duty to maximise the social and economic benefit to the community. A duty framed in such terms overlooks that s 9(1) requires the Minister to "take all reasonable steps", when making a water management plan, to do so in accordance with the water sharing principles in s 5, and that s 5(2) commences with the word "Generally". The water sharing principles compete to some extent. In my opinion, the Minister's obligation, which requires an evaluation, is to take all reasonable steps to generally promote those principles as a whole.

208 As early as 2001 the MGMC discussed commissioning a formal socio-economic study, whether it should compare a "no plan" scenario relative to what would happen under the proposed Plan, and whether it was possible to conduct a farm-by-farm analysis of the impact of the proposed Plan. In 2002 the MGMC established a socio-economic sub-committee to pursue this further. The MGMC was unable to arrive at a consensus as to methodology for a socio-economic study and no consultant was engaged or formal study conducted. The MGMC did consider the ways that the effects of the proposed reduction in entitlements could be minimised or distributed more fairly between licence holders, including consideration of representations of a large piggery business in the area regarding the impact on its operations.

209 No formal socio-economic study was carried out on a farm-by-farm basis or otherwise. This was brought to the Minister's attention in a letter dated 24 July 2006 from the MGMC after public exhibition of the draft Plan and the MGMC's consideration of public submissions. The letter summarised the submissions and brought to the Minister's attention the "lack of socio-economic consideration of the impact of the plan or individual licence holders in the region". The MGMC recommended that "a comprehensive socio-economic study to investigate the impact of entitlement reduction on the viability of affected farms and the region" be carried out "during the first five years of the plan".

210 In my opinion, the statutory obligation on the Minister to have due regard to the socio-economic impacts of a proposed plan did not include a mandatory requirement to conduct a formal socio-economic study nor to consider individual impacts on a farm-by-farm basis.

211 In my view, the applicants' socio-economic case is premised on a misunderstanding of s 20(1)(c). That provision is directed to requirements for licences under the Plan and not the needs, desires or intentions of landholders more generally. The applicants' contrary concept was rejected by the Court of Appeal in Murrumbidgee Groundwater at [103] - [108].

212 In Harvey and Tubbo v Minister Administering the Water Management Act 2000; [2008] NSWLEC 165, (2008) 160 LGERA 50 at [74] it was unsuccessfully alleged that the amendment of a water sharing plan by the Minister under s 45 of the 2000 Act was invalid because of failure to have regard to socio-economic impacts. Jagot J held that the s 18 obligation did not burden the Minister in exercising the amendment power in s 45. Her Honour said at [74]:

As noted, the "public interest" is a broad concept and, no doubt, would often include consideration of the socio-economic impact of proposals (as contemplated by s 18). However, consideration of that matter does not require the Minister to have regard to submissions about the particular impact of the plan on the financial position of individuals. Consistent with the respondent's submissions, the level of generality or specificity at which the Minister approaches the socio-economic impacts of proposals in a plan, as part of the public interest, is not prescribed by the statute and thus is a matter for the Minister.

213 In these very proceedings in NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000; Arnold v Minister Administering the Water Management Act 2000 [2011] NSWLEC 51, (2011) 181 LGERA 166 at [58], Craig J said with reference to Harvey:

Although her Honour was addressing socio-economic impacts of a plan in the context of a requirement to consider the "public interest" her observations are, with respect, equally apt to the specific requirements for consideration identified in s 18(1). If, as in the case of Harvey, consideration of socio-economic impacts did not compel consideration of the "devastating effect on the applicants" (at [73]), as had been represented to the Minister would be the case, so also is it the case that the particular representations made to the Arnold Applicants do not engage the statutory provision in the sense of mandating their consideration by the Minister prior to the making of a plan.

214 The applicants submit that Harvey and NA &J are distinguishable or, alternatively, should not be followed. I do not accept either submission. They are contrary to the applicants' case and consistent with Murrumbidgee Groundwater.

215 The concept of socio-economic impacts in the 2000 Act itself is very broad. Section 3(c) provides that one of the Act's objects is "to recognise and foster the significant social and economic benefits to the State that result from the sustainable and efficient use of water", including "benefits to the environment". Thus, the legislature has recognised that social and economic benefits may include environmental benefits. When considering the socio economic impacts of a proposed plan, the Minister is therefore entitled to consider that the environmental benefits may also have a positive socio-economic impact.

216 The overarching way in which the Minister had due regard to socio-economic impacts was the recognition that entitlements had to be reduced to ensure the sustainable long-term use of the resource. Although no formal or farm-by-farm socio-economic impacts study was conducted, the MGMC and the Minister considered a wide range of socio-economic factors including the following:

 

(a) The move from across-the-board cuts to history of extraction was done out of a concern to offer greater assistance to, and hence reduce the impacts on, those who had actively used their historical water entitlements (as distinct from those who had entitlements that were not significantly used). For example, the Minister wrote in a 2006 letter to the Parliamentary Secretary to the Prime Minister that this move was "to minimise economic and social disruption".

(b) The ASGE program was adopted that would provide substantial ex gratia payments to eligible licence holders to alleviate impacts of entitlement reductions.

(c) Supplementary water access licences, provided for in the Plan, were to be issued to alleviate the impact on those who had actively used their water entitlements in the past.

(d) The MGMC commented on the public submissions and provided a summary to the Minister.

(e) The Murray CMA consulted the community on the basis for water entitlement reductions, availability of supplementary water access licences, and access to ASGE Program funds.

217 The evidence before the Court is replete with examples of consideration of socio-economic impacts by the Minister and others involved in developing the Plan (the respondents have listed examples in a 30 page list forming part of their submissions).

218 The applicants seek to diminish the significance of offers of ASGE payments by submitting that they were weighted in favour of high and low users rather than the average user, that the compensation offer was "not reasonable", and that the community component was "negligible". The applicants seek to exemplify the alleged inadequacy of the amounts offered in the case of six of the applicants by tendering a schedule comparing the offer amount with higher amounts that would result if there were to be adopted the value of inactive water at $85/ML and active water at $304/ML in a 2006 valuation advice by Mr Peter Spackman to the Department of Lands. The applicants justify this approach by citing the reference to "detriment" in Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40, (1986) 162 CLR 24 at 44.8 per Mason J who said: "Once it is accepted that the subject-matter, scope and purpose of the Act indicate that the detriment that may be occasioned by a proposed land grant is a factor vital to the exercise of the Minister's discretion, it is but a short and logical step to conclude that a consideration of that factor must be based on the most recent and accurate information that the Minister has at hand". In the present case, I do not see a relevant detriment. If it be the case that the amount offered was less than a valuation that had been obtained, that does not establish that the Minister thereby did not take the offer of those payments into account as a socio-economic consideration. It is for the decision-maker and not the Court to determine the appropriate weight be given to matters required to be taken into account.

219 The applicants submit that as neither the Chair of the MGMC nor the Minister was called to give evidence in the respondents' case, it should be inferred, in accordance with the principle in Jones v Dunkel [1959] HCA 8, (1959) 101 CLR 298, that their evidence would not have assisted the respondents, first, as to satisfying the Court that "due regard" was given to socio-economic impacts, and secondly, in refuting the applicants' submission that "due regard" to the socio-economic impacts necessitated a formal socio-economic study involving a no-plan versus plan scenario or a farm-by-farm study. Although a Jones v Dunkel inference may be drawn in judicial review proceedings, the circumstances in which it will be drawn are limited. Judicial review proceedings generally proceed on the documents and it is not the usual practice to call the decision-maker. In any event, the respondents called the Executive Officer of the Water Sharing Plan for the Murray/ Lower Darling Regulated River and the Lower Murray Alluvium (Mr Digby Jacobs) and the then chairman of the CMA (Mr Kelvin Baxter), both of whom figured in the making of the Plan. I think that the case should be decided, as far as possible, on the contemporaneous documents and objective probabilities. The principle in Jones v Dunkel concerning the effect of an omission to call a witness is concerned with the strengthening of an inference that is otherwise available: Visa International Service Association v Reserve Bank of Australia [2003] FCA 977, (2003) 131 FCR 300 at [647]. I do not consider that any inference to enliven the operation of this principle should be drawn.

220 Brief reference was made in submissions to written expert affidavit evidence from Professor Curtis and Mr Nichol tendered by the applicants and admitted subject to the respondents' objections, including an objection that it was irrelevant. The applicants submit that these experts identify the elements of socio-economic impact that were relevant to the Minister's consideration.

221 Professor Curtis is experienced in undertaking social impact statements. He cannot give evidence as to what the 2000 Act requires, only as to what he would do if engaged to do a statement. Mr Nichol really only indicates what his company might do if asked to do a statement. Their evidence is irrelevant to determining the content of the obligations imposed by s 18 of the Act. Their evidence appears to me to be based on a misconstruction of the Act as it assumes that the Minister was required to conduct a formal socio-economic impact study or to have regard to specific socio-economic impacts. In my opinion, even if their evidence is admissible (which it is unnecessary to decide), the consideration that was in fact given to socio-economic matters, to which I have earlier referred, was sufficient to satisfy the Minister's statutory duty to have due regard to the socio-economic impacts of the proposed Plan.

222 The applicants also submit that the Minister did not have due regard to the socio-economic impacts because (a) the Plan failed to identify "the requirements for water for extraction under access licences" as required by s 20(1)(c) of the 2000 Act, (b) therefore the Plan's bulk access regime did not have "regard" to that requirement as required by s 20(1)(e). I do not accept the first of those two steps in the applicants' reasoning process for the reasons discussed below when considering the Form issue.

223 Consultation by the Murray CMA as to the potential socioeconomic impact of various proposals of the Plan, and ways to minimise socio-economic disruption, was generally thorough. It included forming and consulting with an Advisory Group of licence holders and holding public meetings of licence holders in relation to the ratio of active to inactive water for the purposes of a history of use formula, provision of supplementary water access licences and distribution of financial assistance. By early December 2005, following nominations from licence holders, the CMA had formed a ten member Advisory Group whose members represented a range of water users, levels of dependency and geographic spread of licences. One of the criteria for selection to the Advisory Group was "demonstration of...an understanding of social and economic issues" and one of the objectives of the Advisory Group was community engagement to result in recommendations to "minimise social economic impacts of entitlement reductions". The Advisory Group met on five occasions. As regards the relative weightings to be given to active and inactive use, the Advisory Group recommended a ratio of 28:22 and this was adopted.

224 However, the applicants submit that the Murray CMA's consultation with licence holders from late 2005 to about May 2006 did not have due regard to socio-economic impacts because across-the-board cuts were an option but Mr Baxter, the Chair of the Murray CMA, understood and indicated to licence holders that it was not part of the Murray CMA's brief to consult with them on whether the across-the board cuts methodology of reducing water extraction entitlements should be adopted.

225 There was no statutory duty on the Minister or the Murray CMA to consult with licence holders on this matter. Under the 2000 Act it is mandatory for a water management plan to be consistent with government policy and inter-governmental agreements: above at [6]. An across-the-board cuts methodology seems inconsistent with government policy and the principles of the intergovernmental ASGE Agreement: above at [49], [51]. What Mr Baxter told licence holders and his understanding appear to be consistent with the following:

 

(a) At a meeting of the GAC on 5 August 2004, attended by Mr Baxter, Mr Peter Sutherland, who was both the Chair of the GAC and a Departmental representative, advised that "neither the GAC's or CMA's were being asked to consult on whether History of Use (HOU) should be used" and that "this would be a decision made by Governments".

(b) A draft paper dated 14 July 2004 titled "Information for CMA Chairs on Groundwater Adjustment Committee" set out the draft parameters, principles and process for review of entitlement reductions methodologies and financial assistance in the six valleys. The CMAs were to "consult with water user groups and licence-holders on the review of the entitlement reduction and assistance package methodologies". The paper stated:

"The Government has agreed to amend the approach agreed in 2001 from reducing all entitlements in over-allocated groundwater sources equally, to an approach tailored for each groundwater system that, where appropriate, recognises historical extraction."

 

(c) On 19 May 2006 the Murray CMA sent its report to the GAAC. The covering letter states:

"Given a draft Water Sharing Plan had not been made publicly available prior to consultation commencing, it was agreed that the Authority would consult licence holders on the following:

• Sharing available water, by defining History of Extraction (HOE) and a weighting of active to inactive water)
• Sharing available financial assistance
• Access to Supplementary Water Access Licence (SWAL) by defining a reduction profile and access."

 

The report stated that its package met "licence holder expectations and broader community interests... while keeping within the two key principles of the Program". The report advised that although "a sector of licence holders were strongly in favour of an 'across the board' cut, the CMA did not present this as one of the options given it would not satisfy the two principles of the [ASGE] Program", namely:

 

·       to recognise water-dependent investments made by licence holders, and

·       to recognise that all groundwater entitlements, whether extracted or not, have a value.

 

(d) These two key principles were communicated to licence holders in a Murray CMA discussion paper at meetings in February 2006 and identified in a brochure to be sent to licence holders included in a ministerial briefing in October 2005.

(e) The option of 'across the board' cuts was not included in the brochure about the ASGE program sent to licence holders in late 2005, which referred only to the CMAs' ability to submit a proposal for an "alternative method to the HOE process" and stated that this would be tested against the "ASGE Program's principles and the level of support by licence holders." According to that brochure, if "the alternative process does not meet this criteria, the HOE will be the default process." Since across-the-board cuts did not fulfil the principle of recognising water-dependent investment, any proposal to use such a methodology would not meet the criteria, and the default process of history of use would therefore apply instead.

(f) GAAC's terms of reference suggest that it was expected to consider proposals which were alternatives to "across the board" cuts. One of GAAC's objectives was to "consider proposals for alternative entitlement reduction methods, giving consideration to history of use (HOU) or equivalent methodology, and consequent changes to groundwater sharing plans". "Alternative" referred to alternatives to the previous policy of "across the board" cuts and an "equivalent methodology" to HOU would likely be one which recognised water-dependent investment. GAAC's specific functions included providing advice to GAOC on "alternative entitlement reduction methodology, giving consideration to HOU or equivalent methodology, and assistance methodologies consistent with level of funding available and key principles guiding the review." It was also required to assist the Chairs of the CMAs in the task of consulting about and reviewing the Water Sharing Plans "and ensure that the changes are consistent with the principles of the review." It was not consistent with GAAC's functions to consider or endorse an "across the board" cuts methodology, since this would not be consistent with the review principles.

(g) Mr Baxter indicated in evidence that at meetings he was told by Mr John Verhoeven, one of the senior government officials involved in the process, that the model was to be one of history of extraction, that there was 6.3 million dollars to be apportioned for that model, or a history of use default model, or, within the same guidelines, a better proposal that the CMA deemed to be more equitable and that had the support of the majority of land holders.

(h) An Information Bulletin published by the Murray CMA on 3 February 2006 indicated that the Murray CMA could consider alternative options to history of use "provided they fulfil the principles of the Achieving Sustainable Groundwater Entitlements Program, can be undertaken in the time period available, and have licence holder support."

(i) In March 2006, in an Information Bulletin, the Murray CMA reported that it had "developed a model that responds to licence holders' feedback while keeping within the constraints of Sustainable Yield, financial assistance available and the principles of the Achieving Sustainable Groundwater Entitlements Program." One of the ways in which the model was said to be consistent with those principles was that it recognised "water dependent investment through weighting water availability towards History of Extraction".

226 As the applicants submit, there was some indication in two documents that the across-the-board reduction method remained open. The first is a draft 2004 document titled "Information for Consultation by Catchment Management Authorities (CMAs) with Groundwater Licence Holders". It indicated that the starting point was "the policy preference for weighting to History of Extraction". History of extraction was also the "default methodology". Other methodologies (such as history of reliance) could be adopted, but valleys wishing to depart from history of extraction would "need to put a very strong case to the GAAC through their CMAs". "If a valley decides on the earlier 'across the board' cuts approach, the indicative funding for the valley calculated using the HOE methodology and the Valuer-General's valuation will be retained by governments and redistributed to other valleys if required". This document was endorsed at a GAAC meeting of 21 September 2005 as a "work in progress". There is nothing to suggest it was adopted in final form. Its statement about the option of "across the board" cuts should therefore be treated with caution and understood in light of other documents to which I have referred indicating that this option was not available.

227 The second document to which the applicants refer is related to the first. It is an email dated 7 March 2006 to Mr Baxter and others in which Mr Verhoeven said that GAAC had "agreed at its meeting of 21 September 2005 that if a valley decides on the across-the-board cuts approach, the indicative funding will be retained by governments and distributed to other valleys if required". Mr Baxter did not recall such an agreement. It is unclear why Mr Verhoeven thought that it had been "agreed" that a valley could adopt across-the-board cuts. It may have been because the GAAC meeting of 21 September 2005 endorsed the draft document entitled "Information for Consultation by Catchment Management Authorities (CMAs) with Groundwater Licence Holders" as a work in progress (see above). This email was part of an email exchange initiated by the Murrumbidgee CMA and, understood in context, it is doubtful that it supports the applicants' position given the following:

(a) On 3 March 2006 Mr Verhoeven emailed GAAC members (including Mr Baxter) to say that the Murrumbidgee CMA had forwarded a pro rata reduction proposal for consideration as an alternative to history of use, which was "the same as across-the-board cuts, having active:inactive weightings of 50:50". Mr Verhoeven proposed to advise the Murrumbidgee CMA that this was not approved because it did not meet the ASGE principles of recognising water dependent investment and recognising that all entitlements have a value. The NSW Irrigators Council declined to support the proposal for the same reason.

(b) On 5 March 2006 the Chair of the Murrumbidgee CMA, Mr Jim McDonald, emailed Mr Verhoeven, members of GAAC (including Mr Baxter) and a representative of the Minister's Office, saying "it is not the role of the GAAC to take, or be seen to be taking, positions"; however, he agreed to GAAC recommending that the proposal "does not meet the principles for participation in the ASGE program for the funding portion".

(c) On 7 March 2006, in the email to the GAAC members (including Mr Baxter), Mr Verhoeven made the statement to which the applicants refer (above). However, he remained firm in his opinion that this approach was inconsistent with the governments' two key principles and made clear that the GAAC's objectives were to consider proposals giving consideration to history of use or equivalent methodology (not to proposals for "across the board" cuts).

(d) A review of the Draft Meeting Outcomes of the GAAC meeting of 21 September 2005 (a meeting attended by Mr Baxter), which were adopted at the GAAC meeting of 18 October 2005, does not record any such agreement being reached. On the contrary, GAAC considered a proposal from the Lachlan CMA to use a history of reliance model, and it was agreed that this "approach is consistent with governments' two principles, and that the Lachlan CMA could proceed with the HOR surveys". This suggests that GAAC was proceeding consistently with its terms of reference in testing proposed methodologies against the government principles.

228 Looking at the evidence as a whole, I am not satisfied that the across-the-board method of reducing entitlements was still open or that Mr Baxter was in error in indicating to licence holders that it was not part of the Murray CMA's brief to consult with them about it. Even if I am in error, in the circumstances, I do not consider that this establishes the alleged ground of judicial review. Consultation with licence holders on a history-of-use methodology was not mandated by the 2000 Act. As discussed earlier, there was a great deal of consideration of socio-economic impacts by the Minister and the Murray CMA. The Minister had the Murray CMA's May 2006 report that a sector of licence holders was strongly in favour of across-the-board cuts. The Minister expressly indicated that he had taken into account that some users with a low history of extraction sought a return to across-the-board cuts, and that the government considered this method to be inequitable (eg above at [64]).

229 For these reasons, I do not accept the applicants' socio-economic case.

THE FORM ISSUE

230 The applicants form case is that the Plan is defective in form because its water sharing provisions fail to deal with "the identification of the requirements for water for extraction under access licences" as mandated by ss 20(1) and 50(2) of the 2000 Act. The applicants place reliance on the fact that whereas cl 21(1) of the Plan says that at the commencement of the Plan "the water requirements" of holders of "domestic and stock rights" (a species of "basic landholder rights" as defined in the 2000 Act) are estimated to be a total of 1,525 ML/year, there is no equivalent provision referring to "the water requirements" of holders of access licences. The applicants' argument (at least implicitly) acknowledges that cl 21(1) of the Plan satisfies the requirements of s 20(1)(b) of the 2000 Act (that the Plan must deal with "the identification of requirements for water...to satisfy basic landholder rights"), but the applicants submit that the absence of an equivalent provision in relation to the "identification of requirements for water for extraction under access licences" leaves s 20(1)(c) unsatisfied.

231 It is convenient to repeat ss 20(1)(b) and (c) and 50(2) of the 2000 Act:

20 Core provisions

(1) The water sharing provisions of a management plan for a water management area or water source must deal with the following matters:

...

(b) the identification of requirements for water within the area, or from the water source, to satisfy basic landholder rights,

(c) the identification of requirements for water for extraction under access licences,

50 Minister's plan

...

(2) A Minister's plan must in general terms deal with any matters that a management plan is required to deal with, and may also deal with any other matters that a management plan is authorised to deal with, other than matters that are already dealt with by a management plan.

232 Section 20 matters are among the matters that a Part 3 management plan is required to deal with. Therefore, by s 50(2) the Plan had to deal with s 20 matters, but only "in general terms".

233 Clause 21(1) of the Plan provides:

At the commencement of this Plan, the water requirements of holders of domestic and stock rights are estimated to be a total of 1,525 ML/yr.

234 Part 7 (cll 24-29) of the Plan expressly says that it is made in accordance with s 20(1)(c) of the 2000 Act: cl 24. Clauses 27 and 28 (set out above at [97]) provide formulae for the share components of aquifer access licences and supplementary water licences that include factors for history of use.

235 As discussed above at [211] - [213], in my opinion the applicants' submission is based on a misconstruction of s 20(1)(b) and (c) of the 2000 Act. The word "requirements" in those subsections refers to what the water itself is required for under the Plan, namely, "to satisfy basic landholder rights" or "for extraction under access licences": s 20(1)(b) and (c). Those requirements are set out in Part 7 of the Plan, and in relation to access licences in, relevantly, cll 27 and 28. Section 20(1)(c) does not require the Plan to identify the needs, desires or intentions of groundwater users.

236 Accordingly, I do not accept the applicants' form case.

THE CONSTITUTIONAL ISSUE

237 The constitutional ground of the applicants' challenge to the Plan is that the replacement of bore licences under the 1912 Act with aquifer access licences under the 2000 Act involved an acquisition of property other than on just terms within the meaning of s 51(xxxi) of the Constitution. That section provides:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:

...

(xxxi) The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.

238 The applicants contend that the water rights in issue are "property" within the meaning of s 51(xxxi), and that there has been an "acquisition" of that property within the meaning of that section.

239 In my opinion, the applicant's challenge based on s 51(xxxi) must fail. In these very proceedings in Arnold v Minister Administering the Water Management Act [2010] HCA 3, (2010) 240 CLR 242 the High Court addressed this issue and decided that the replacement of bore licences involved no acquisition of property within the meaning of s 51 (xxxi): at [3] per French CJ, at [48] per Gummow and Crennan JJ, at [72] per Hayne, Kiefel and Bell JJ.

240 Accordingly, I reject the applicants' constitutional ground of challenge.

CONCLUSION

241 The proceedings are dismissed with costs. The exhibits may be returned.

Amendments

18 June 2013 - Punctuation errors in paras [106], [176], [185], [194], [204(a)], [225(c)], [227(a)], [237] Repetitive words deleted in second sentence of para [180].
Amended paragraphs: [106], [176], [180], [185], [194], [204(a)], [225(c)], [227(a)], [237]

Decision last updated: 18 June 2013