Arnold v Minister Administering the Water Management Act 2000

CATCHWORDS: ADMINISTRATIVE LAW - judicial review - jurisdiction - federal jurisdiction of the Land and Environment Court - s 39 Judiciary Act 1903 (Cth) - ADMINISTRATIVE LAW - judicial review - jurisdiction - ancillary jurisdiction of the Land and Environment Court - s 39 Judiciary Act 1903 (Cth) - s 16(1A) Land and Environment Court Act 1972 - ADMINISTRATIVE LAW - judicial review - standing to institute proceedings - CONSTITUTIONAL LAW - acquisition of property on just terms - s 51(xxxi) Constitution - validity of Commonwealth statutes providing for grants of financial assistance to the States under s 96 and regulating water use - whether the Commonwealth statutes are laws with respect to the acquisition of property - CONSTITUTIONAL LAW - operation and effect of the Commonwealth Constitution - Restrictions on Commonwealth legislation - s 100 Constitution - laws made under trade and commerce power - CONSTITUTIONAL LAW - operation and effect of the Commonwealth Constitution - restrictions on Commonwealth legislation - s 51(xxxi) Constitution - whether Commonwealth employed a circuitous device - STATUTORY INTERPRETATION - joint Commonwealth and State legislative schemes - agreement between Commonwealth and State - whether the existence or validity of an agreement has an effect on validity of State Act and State plan

Constitution Federal Court of Australia Act 1976 (Cth) Judiciary Act 1903 (Cth) Land Acquisition (Just Terms Compensation) Act 1991 LEGISLATION CITED: Land and Environment Court Act 1972 National Resources Management (Financial Assistance) Act 2004 (Cth) National Water Commission Act 1992 (Cth) Water Act 1912 Water Management Act 2000

Aboriginal Community Benefit Fund Pty Ltd v Batemans Bay Local Aboriginal Council (1997) 41 NSWLR 494 Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531; (2007) 157 LGERA 379 Attorney-General (Vic); Ex rel Black v Commonwealth (1981) 146 CLR 559 Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 Bank of New South Wales v Commonwealth (1948) 76 CLR 1 British Medical Association v Commonwealth (1949) 79 CLR 201 Cameron v Human Rights and Equal Opportunity Commission (1993) 46 FCR 509 Clunies-Ross v Commonwealth (1984) 155 CLR 193 Combet v Commonwealth [2005] HCA 61; (2005) 224 CLR 494 Commonwealth v Dalton (1924) 33 CLR 452 Commonwealth v Rhind (1966) 119 CLR 584 Commonwealth v Tasmania (1983) 158 CLR 1 Commonwealth v WMC Resources Ltd [1998] HCA 8; (1998) 194 CLR 1 Croome v Tasmania (1996) 191 CLR 119 Davis v Commonwealth (1986) 61 ALJR 32 Durham Holdings Pty Ltd v New South Wales [1999] NSWCA 324; (1999) 47 NSWLR 340 Felton v Mulligan (1971) 124 CLR 367 Health Insurance Commission v Peverill (1994) 179 CLR 226 Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12 Ly v Jenkins [2001] FCA 1640; (2001) 114 FCR 237 CASES CITED: Miller v TCN Channel Nine Pty Ltd (1986) 161 CLR 556 Minister for Local Government v South Sydney City Council [2002] NSWCA 288; (2002) 55 NSWLR Minister for Minerals and Energy v Vaughan-Taylor (1991) 73 LGERA 115 Minister of the State for the Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459 Moorgate Tobacco Ltd v Phillip Morris Ltd (1980) 145 CLR 457 Morgan v Commonwealth (1947) 74 CLR 421 National Parks and Wildlife Service v Stables Perisher Pty Ltd (1990) 20 NSWLR 573 Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 513 Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134 Nix & Dunn v Pittwater Council (1994) 84 LGERA 199 NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] NSWLEC 5; (2001) 112 LGERA 403 P J Magennis Pty Ltd v Commonwealth (1949) 80 CLR 382 Permanent Trustee Australia Ltd v Commissioner of State Revenue (Vic) [2004] HCA 53; (2004) 220 CLR 388 Pye v Renshaw (1951) 84 CLR 58 Scharer v NSW [2001] NSWCA 360; (2001) 53 NSWLR 299 Smith v ANL Ltd [2000] HCA 58; (2000) 204 CLR 493 Spencer v Commonwealth [2008] FCA 1256 Stables Perisher Pty Ltd (1990) 20 NSWLR 573 Telstra Corporation Ltd v Commonwealth [2008] HCA 7; (2008) 82 ALJR 521 Tunnock v Victoria (1951) 84 CLR 42 Victoria v Commonwealth (1926) 38 CLR 399 Waterhouse v Minister for the Arts and Territories (1993) 43 FCR 175

Alan Arnold and 107 others (Applicants) PARTIES: Minister Administering the Water Management Act 2000 (First Respondent) State of New South Wales (Second Respondent) Commonwealth of Australia (Third Respondent)

COUNSEL: P T Taylor SC; P King (Applicants) A Robertson SC; C Lenehan (Respondents)

SOLICITORS: Taylor & Whitty Solicitors (Applicants) Australian Government Solicitor (Respondents)

LOWER COURT JURISDICTION: Land & Environment Court

LOWER COURT FILE NUMBER(S): NSWLEC 40049 / 07

LOWER COURT DATE OF DECISION: 21 December 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531

• 22 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40084/08

SPIGELMAN CJ ALLSOP P HANDLEY AJA

Thursday 4 December 2008 Alan Arnold v The Minister Administering the Water Management Act 2000

The applicants held groundwater extraction entitlements under the Water Act 1912. These entitlements were reduced by the Water Management Act 2000 and the Water Sharing Plan for the Lower Murray Groundwater Source 2006 ("the 2006 Plan"), in the context of a national water sustainability arrangement involving Commonwealth legislation ( Natural Resources Management (Financial Assistance) Act 1992 (Cth) and National Water Commission Act 2004 (Cth)) and Commonwealth/State agreements, including a Funding Agreement.

The applicants challenged the validity of the 2006 Plan and the Commonwealth legislative scheme in the Land and Environment Court ("the L&E Court"). The Commonwealth sought dismissal of the proceedings against it. Lloyd J dismissed the proceedings.

(i) whether the L&E Court has jurisdiction to determine the validity of Commonwealth legislation by reason of infringement of s 51(xxxi) or s 100 of the Constitution;

(ii) whether the applicants have standing to seek a declaration that the National Water Commission Act 2004 is invalid;

(iii) whether the proceedings against the Commonwealth disclose a reasonable cause of action or are frivolous or vexatious.

HELD Jurisdiction Issue ( Per Spigelman CJ, Allsop P and Handley AJA agreeing )

1 The "limits of the jurisdiction" of the L&E Court define the extent to which the L&E Court is invested with federal jurisdiction, pursuant to s 39(2) of the Judiciary Act 1903 (Cth). [46] [56] [147] [148] Commonwealth v Rhind (1966) 119 CLR 584; Minister of State for the Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459 applied.

2 The limits of the jurisdiction are to be found in affirmative limitations, but extend to implicit limitations. The conferral of jurisdiction with respect to a subject matter is itself an affirmative limitation on jurisdiction. [64]-[65] [147] [148] Ly v Jenkins [2001] FCA 1640; (2001) 114 FCR 237; Commonwealth v Dalton (1924) 33 CLR 452 applied.

3 The relevant subject matter which limits the L&E Court's jurisdiction in this case, is the State legislative scheme of the Water Management Act 2000. [58]-[59] [147] [148]

4 Section 16(1A) of the Land and Environment Court Act 1972 confers ancillary jurisdiction on the L&E Court. If the claim of invalidity of Commonwealth conduct is found to be ancillary to the issue of validity of the 2006 Plan, or an essential step in the case against the State, then the L&E Court has jurisdiction to determine that federal issue. [67]-[68] [147] [148]

5 This involves an assessment of the legislative scheme and raises questions of fact and degree, which was not attempted in the court below or in this Court. Accordingly it was not appropriate for the court below to find that the L&E Court did not have jurisdiction pursuant to s 16(1A). [83]-[86] [147] [148] Stables Perisher Pty Ltd (1990) 20 NSWLR 573; Scharer v New South Wales [2001] NSWCA 360; (2001) 53 NSWLR 299; Nix & Dunn v Pittwater Council (1994) 84 LGERA 199 referred to.

Summary dismissal issue Irrigation Waters (Per Spigelman CJ, Allsop P and Handley AJA agreeing)

6 None of the agreements or legislation offend the prohibition in s 100 of the Constitution, which only applies to laws made under s 51(i) of the Constitution. In any event, no statute or agreement relied upon by the applicants can be characterised as a "law or regulation of trade or commerce". [89]-[93] [147] [148] Morgan v Commonwealth (1947) 74 CLR 421 applied. Permanent Trustee Australia Ltd v Commissioner of State Revenue (Vic) (2004) 220 CLR 388 referred to.

Acquisition of Property (Per Spigelman CJ, Allsop P and Handley AJA agreeing)

7 Neither of the Commonwealth statutes relied on can be characterised as a law of the Commonwealth with respect to acquisition of property. [96]-[99] [107]-[110] [147] [148] Pye v Renshaw (1951) 84 CLR 58; Spencer v Commonwealth [2008] FCA 1256 applied. PJ Magennis Pty Limited v The Commonwealth (1949) 80 CLR 382 distinguished. Clunies-Ross v Commonwealth (1984) 155 CLR 193; Telstra Corporation Ltd v Commonwealth [2008] HCA 7; (2008) 82 ALJR 521; Attorney-General (Vic); Ex rel Black v Commonwealth (1981) 146 CLR 559; Commonwealth v WMC Resources Ltd [2998] HCA 8; (2998) 194 CLR 1; Smith v ANL Ltd [2000] HCA 58; (2000) 204 CLR 493 referred to.

8 The validity or even existence of any Commonwealth/State agreements is irrelevant to the legal validity of the 2006 Plan or the Water Management Act 2000. [113]-[119] [147] [148] Pye v Renshaw ( 1951) 84 CLR 58; Tunnock v Victoria (1951) 84 CLR 42; Durham Holdings Pty Ltd v New South Wales [1999] NSWCA 324; (1999) 47 NSWLR 340 applied. PJ Magennis Pty Limited v The Commonwealth (1949) 80 CLR 382 distinguished.

9 The allocation by the Commonwealth of a grant under s 96 of the Constitution is valid even if the funds are to be used by the State to acquire property on other than just terms. The State is entitled to accept funds from the Commonwealth on whatever basis it wishes. [121] [124] [127] [147] [148] Pye v Renshaw ( 1951) 84 CLR 58; Victoria v Commonwealth (1926) 38 CLR 399 applied.

10 In view of the national water management objectives of the scheme, there is no basis for the contention that the joint venture between the Commonwealth and the State was a circuitous device to avoid the limits of the Constitution. There is no circuitous device where the Commonwealth could not achieve its policy objectives, or chose not to do so, by force of its own legislative power. [138]-[139] [147] [148] Bank of New South Wales v Commonwealth (1948) 76 CLR 1; British Medical Association v Commonwealth (1949) 79 CLR 201; Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480; Newcrest Mining (WA) Ltd v Commonwealt h (1997) 190 CLR 513; Waterhouse v Minister for the Arts and Territories (1993) 43 FCR 175; Miller v TCN Channel Nine Pty Ltd (1986) 161 CLR 556 referred to.

Standing Issue (Per Spigelman CJ, Allsop P and Handley AJA agreeing)

11 The applicants' submissions on standing did not identify how the invalidity of Commonwealth legislation or conduct could impinge on State conduct under the Water Management Act 2000 and, therefore, failed to establish how a declaration of invalidity could have any practical consequences. [140] [147] [148] Tunnock v Victoria (1951) 84 CLR 42; Pye v Renshaw (1951) 84 CLR 58; Davis v Commonwealth (1986) 61 ALJR 32; C roome v Tasmania (1996) 191 CLR 119; Aboriginal Community Benefit Fund Pty Ltd v Batemans Bay Local Aboriginal Council (1997) 41 NSWLR 49; Cameron v Human Rights and Equal Opportunity Commission (1993) 46 FCR 509; Combet v Commonwealth [2005] HCA 61; (2005) 224 CLR 494; Spencer v Commonwealth [2008] FCA 1256 referred to.

Orders (Per Spigelman CJ, Allsop P and Handley AJA agreeing)

1 Grant leave to appeal. 2 Appeal dismissed with costs.

[146] [147] [148] IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40084/08

SPIGELMAN CJ ALLSOP P HANDLEY AJA

Thursday 4 December 2008 Alan Arnold v The Minister Administering the Water Management Act 2000

Judgment 1 SPIGELMAN CJ: This is an application for leave to appeal from the judgment of Lloyd J in the Land and Environment Court ("L&E Court") in which his Honour ordered that the proceedings against the Commonwealth be dismissed. (Arnold v Minister Administering the Water Management Act 2000 [2007] NSWLEC 531; (2007) 157 LGERA 379.) The respondent does not oppose the grant of leave. Substantive issues involving the scope of the jurisdiction of the L&E Court and the Constitutional validity of an important national policy have been raised. Leave should be granted. 2 The applicants are farmers who held groundwater extraction entitlements in the Lower Murray region under Pt 5 of the Water Act 1912. Pursuant to Pt 2 of Ch 3 of the Water Management Act 2000, as and from 1 November 2006, such entitlements were replaced by aquifer access licences and supplementary water licences. As a result of these measures, and pursuant to the Water Sharing Plan for the Lower Murray Groundwater Source 2006 ("the 2006 Plan"), if valid, the applicants' entitlements to extract groundwater have been significantly reduced. 3 The applicants commenced proceedings in the L&E Court challenging the validity of the legislative scheme and the 2006 Plan. The parties to the proceedings are the Minister Administering the Water Management Act 2000, the State of New South Wales and the Commonwealth. The relief sought included declarations that the 2006 Plan is invalid, that the National Water Commission Act 1992 (Cth) ("the NWC Act") and the National Resources Management (Financial Assistance) Act 2004 (Cth) ("the Financial Assistance Act") are, relevantly, unconstitutional, as well as quashing orders, injunctions and damages. 4 The alleged constitutional invalidity of the Commonwealth legislation was based upon s 51(xxxi) (the acquisition of property power) and on s 100 (the preclusion of the Commonwealth from abridging the right of a resident to the reasonable use of the waters of rivers for irrigation). 5 The Commonwealth filed a Notice of Motion seeking a stay or dismissal of the proceedings against it on the bases that:

(i) the Court had no jurisdiction to grant the relief sought;

(ii) the Applicants did not have standing to seek the relief sought; and

(iii) the proceedings disclosed no reasonable cause of action, or were frivolous or vexatious. 6 By a judgment dated 21 December 2007 Lloyd J made the orders sought in the Notice of Motion, upholding each of the bases advanced by the Commonwealth. 7 The applicants' written submissions identify the issues which would arise under the draft notice of appeal filed with the application for leave to appeal:

(i) Whether the L&E Court has jurisdiction in the proceedings to determine the invalidity of Commonwealth legislation by reason of infringement of the compulsory acquisition on just terms provision (s 51(xxxi)) or by reason of the infringement of the reasonable use of waters of rivers for irrigation provision (s 100).

(ii) Whether the applicants have standing to seek a declaration that the provisions of the NWC Act were invalid.

(iii) Whether the proceedings against the Commonwealth disclose a reasonable cause of action, or are frivolous or vexatious. 8 The primary focus of the applicants' attack is the exercise of executive power by a Minister of the Government of New South Wales. It is, and was, common ground that the L&E Court could review the decision to promulgate the 2006 Plan in the exercise of that Court's supervisory jurisdiction. The issues before this Court relate only to the joinder of the Commonwealth. 9 The applicants contend that the L&E Court has jurisdiction on two alternative bases. First, the validity of Commonwealth legislation and/or the validity of agreements to which the Commonwealth is a party, each of which underpinned the 2006 Plan, were essential elements of the cause of action against the State. Secondly, the applicants maintain a claim directly against the Commonwealth. On either basis, the applicants contend, the Commonwealth is a proper party. 10 The issues raised by the applicants require, in the first instance, attention to the Points of Claim filed in the L&E Court.

The Points of Claim 11 The Points of Claim refer to agreements between the Commonwealth and the State of New South Wales which culminated in the Achieving Sustainable Groundwater Entitlements Programme ("ASGE") which was described as: "29A … a joint venture collaboration or arrangement between the two said parties whereby each would contribute equally to the costs and expenses of the programme including the payment of moneys by the [Commonwealth] to the Applicants to assist in the acquisition of their former water entitlements by the exercise of the plan making functions of the [Minister]." 12 The ASGE Project led to the Funding Agreement of November 2005, pursuant to which the Commonwealth provided funds to the State for the Project. As I will set out below, the Funding Agreement provided that water entitlements be adjusted in the way they were adjusted in the 2006 Plan. The matter of particular relevance to the applicants was the addition of a requirement that the mechanism for determining the reduction in entitlements would have regard to history of extraction. The policy, reflected in the 2006 Plan, was implemented by Committees on which both the Commonwealth and the State were represented. 13 The applicants' contention that the 2006 Plan is invalid is identified as the "Second Claim" in the Points of Claim. 14 The applicants' submission that the invalidity of Commonwealth conduct is an essential element of its challenge to the decision of the State Minister to make the 2006 Plan, is based, relevantly, on pars 13.4 and 13.12 of the Points of Claim, which provide particulars of the assertion that the 2006 Plan is invalid: "13.4 In making the Plan the [Minister] took into account an irrelevant consideration namely the dictation or requirement of the Commonwealth Government as to the basis for reductions in water allocation rather than a broad approach of general application balanced by considerations of equity amongst water users in the State and having regard to the environment of New South Wales." "13.12 The plan making function was exercised in accordance with a rule or policy without any or sufficient regard to the merits of the case, namely by fettering the exercise or purported exercise of the function or by having regard to an extraneous consideration namely the Anderson - Knowles agreement of October 2003 and the ASGE Agreement dated 4 November 2005." 15 The basis upon which the applicants contend that the "dictation or requirement of the Commonwealth" and/or the agreements of October 2003 and November 2005, were "irrelevant" or "extraneous", is that Commonwealth legislation was ultra vires the powers of the Commonwealth by force of s 51(xxxi) or s 100 of the Constitution and, accordingly, that there was no valid agreement. No submissions were advanced in this Court with respect to par 13.12. The submissions concentrated on par 13.4 asserting that the decision was based on the irrelevant considerations pleading. Insofar as they arise in the applicants' case against the Commonwealth, both paragraphs raise the same kind of issue and the answer to one would apply to the other. I proceed below by reference to the irrelevant considerations pleading. Furthermore, the submissions focused on the validity of the Funding Agreement, rather than the pre-existing agreements. 16 The Points of Claim identify a "Sixth Claim" which asserts that the water entitlements constituted property within s 51(xxxi) of the Constitution and refer to Commonwealth/State agreements culminating in the Funding Agreement. The Points of Claim state: "30 The agreements were authorised by and made for the purposes of Natural Resources Management (Financial Assistance) Act 1992 and National Water Commission Act 2004, and on the basis that the [Minister] asserted and continues to assert that water and water resources including the water and the water entitlements of the Applicants are a national resource within its power, control and legislative and executive authority. 31 By the terms of and for the purposes of the agreements the [Commonwealth] was required or authorised to make provision for the payment of certain moneys to the Applicants. 32 By or pursuant to the terms of the agreements the [State of NSW] by means of the purported exercise of the plan making functions of the [Minister] assisted by and in association with the [Commonwealth] was required or authorised to resume or otherwise acquire a substantial part of the former water entitlements of the Applicants for no money except for the vague promise and under the threat made to them that so long as no challenge by the Applicants or other farmers was made to the reductions in allocations the [Minister] may pay an adjustment fee to the Applicants which may assist the said farmers in adjusting to the loss of their former entitlements. 33 The [State of NSW] has purported to acquire the licences and former entitlements of the Applicants by the reduction or conversion of same pursuant to State laws for the purposes of the agreements such as to render many of the Applicants penurious and without making any payment for such acquisition and loss. 34 The [Commonwealth] threatens and intends to pay out of Commonwealth funds moneys for the purposes of the agreements, and has refused to pay just compensation in respect of the acquisition of the water entitlements of the Applicants. 35 Further or alternatively with respect to water and water resources neither the Acts of the Commonwealth nor the agreements are authorised by any head of Commonwealth legislative or executive power nor any authorised purpose of the Commonwealth. 36 Further or alternatively in the premises the [Commonwealth] has by a law or by regulation of trade or commerce of the Applicants and/or water users of New South Wales abridged the rights of the State and of the residents of the State to the reasonable use of the waters of the State including the Murray River and its tributaries and linked aquifers being ancient underground rivers in the particular circumstances of the case for conservation or irrigation." 17 I note that no submission was addressed to this Court with respect to the Financial Assistance Act, referred to in par [30] of the Points of Claim. The applicants relied only on the NWC Act. 18 Furthermore, no submission was addressed to the assertion in par [35] of the Points of Claim about the absence of a head of power. The applicants concentrated only on the acquisition power and on s 100. 19 The applicants further contend, with respect to each of the Second and Sixth Claims, that the 2006 Plan is invalid as a "device" for the Commonwealth to achieve indirectly what it could not do directly. This is alleged in particular 13.6: "13.6 The making of the Plan was in furtherance of or pursuant to a joint venture or agreement between the [State of NSW] and [the Commonwealth] and was a device for the purposes of avoiding the operation of Constitution sections 51(xxxi) and/or 100." 20 This pleading is reinforced by par 36A of the Points of Claim: "36A In the premises the making of the Plan by the First Respondent pursuant to or in furtherance of the agreements and the ASGE in particular was a device to avoid the operation of Constitution section 51(xxxi) and or section 100 or both of them." 21 It is convenient to deal with the "device" allegation separately. 22 The applicants seek a number of orders in their Further Amended Application in the L&E Court. The principal relief is a declaration that the 2006 Plan is invalid. Relevantly they also seek a declaration that the Financial Assistance Act and the NWC Act are invalid insofar as they apply to water. No relief is sought with respect to the Funding Agreement.

The Funding Agreement 23 It is pertinent to set out certain provisions of the Funding Agreement. 24 The word Programme is defined as: " … the Water Smart Australia programme administered by the Commonwealth and under which the Commonwealth is able to provide the Funding to the State." 25 Recitals F, G and H of the Funding Agreement state: "F. The objective of the Programme is to accelerate the development and uptake of smart technologies and practices in water use across Australia for purposes that include improving river flows, on-farm water efficiency, recycling and re-use of stormwater and 'grey' water, water storage, sewerage management; water desalination, irrigation infrastructure and water-efficient house design. G. The State is committed to helping achieve the Programme through the State's contribution to and conduct of the Achieving Sustainable Groundwater Entitlements project ('the Project'). H. As a result of this commitment, the Commonwealth has agreed to support the Project by its involvement in the Project and by providing Funding to the State, subject to the terms and conditions of this Agreement." 26 The relevant Project for groundwater, which encompassed a number of regions including, relevantly, the Lower Murray, is set out in a Schedule, with respect to which the Agreement provides: "5.1. The State agrees to carry out the Project: a. within the Project Period and in accordance with the Agreement and all applicable Laws; b. diligently, effectively and to a high professional standard; c. at all times in a manner that is consistent with the objectives and outcomes of the NWI; and d. so as to meet the Milestones, Objectives and timeframes specified in Item 1 of the Schedule. 27 Under the heading "Project Overview" and "Objectives" the Schedule states: "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 lower 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." 28 Under "Project activities" the following appears: "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. … 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: … D. A reduction of 167,000 ML (or 68%) in the Lower Murray; … 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." " 29 Express provision is made for what became the 2006 Plan: "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. k. The State agrees that, at the commencement of the Water Sharing Plan for each Groundwater System, each affected licence holder will receive a Supplementary Access Licence ('SAL') that: A. allows the licence holder to access water in excess of their final water entitlement (reached in 10 years) but not in excess of the licence holder's historical extraction of the Groundwater System; and B. is reduced over the 10 year period of the Water Sharing Plan so that at the end of the 10 year period a SAL provides no water access rights to the licence holder. l. In 2006-07 and after the commencement of the Water Sharing Plans … the State agrees to make the upfront and ex gratia structural adjustment payments referred to in paragraph j(C) above and undertake all administration associated with the making for those payments. The State agrees, in making structural adjustment payments, that: A. the Commonwealth is not required to provide any Funding to the State for the making of structural adjustment payments to licence holders until the State has provided the Commonwealth with a detailed payment schedule that shows the timing and amounts of those payments; B. the maximum amount of structural adjustment payments is $100 million and that the cost of each structural adjustment payment is to be shared equally between the Funds and State Contributions …" 30 The above were the provisions on which the applicants primarily relied in submissions in this Court. Other provisions referred to concerned the issue of just terms, which does not arise on the appeal.

Jurisdiction 31 Before Lloyd J the applicants made a number of submissions in support of their contention that the L&E Court had jurisdiction. Not all of these contentions are advanced on appeal. 32 The applicants now appear to accept the contention of the Commonwealth, adopted by Lloyd J, that the relevant analysis must commence with s 39(2) of the Judiciary Act 1903 (Cth) which provides: "39(2) The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter, or otherwise, be invested with federal jurisdiction …" 33 In this regard, his Honour held: "[79] Thirdly, the applicants rely on the invested federal jurisdiction of the LEC under s 39(2) of the Judiciary Act 1903. This appears to be the only potential source of jurisdiction for this Court to hear the claims against the Commonwealth. The applicants submit that this Court is a court of unlimited jurisdiction within the limits of its subject matter and that s 39(2) of the Judiciary Act invests this Court with all the original jurisdiction of the High Court. Section 39 is therefore said to add to the existing jurisdiction of this Court. The Commonwealth, however, submits that jurisdiction is conferred upon state courts within the limits of their several jurisdictions, including limitations to their subject matter. Since this Court is a court of limited jurisdiction, I agree with the submissions of the Commonwealth on this point. Section 39(2) of the Judiciary Act 1903 confers jurisdiction on the courts of the State 'within the limits of their several jurisdictions', whether such limits are as to locality, subject matter, or otherwise. Section 39(2) is of no assistance to the applicants due to the limitations upon the jurisdiction of the Court being adopted for the purposes of the conferral of federal jurisdiction under that section: D&H Investments Pty Ltd at 41." 34 In submissions to this Court the applicants continued to refer to s 47 of the Water Management Act, which relevantly provides: "47(1) The validity of a management plan may not be challenged, reviewed, quashed or called into question before any court in any proceedings, other than before the Land and Environment Court in proceedings commenced within the judicial review period. … (4) Without limiting subsection (1), the exercise by a designated person of any plan-making function may not be: (a) challenged, reviewed, quashed or called into question before any court in any proceedings, or (b) restrained, removed or otherwise affected by any proceedings, other than before the Land and Environment Court in proceedings commenced within the judicial review period. (5) The provisions of or made under this Act and the rules of natural justice (procedural fairness), so far as they apply to the exercise of any plan-making function, do not place on a designated person any obligation enforceable in a court (other than in the Land and Environment Court in proceedings commenced within the judicial review period). (6) Accordingly, no court (other than the Land and Environment Court in proceedings commenced within the judicial review period) has jurisdiction or power to consider any question involving compliance or non-compliance, by a designated person, with those provisions or with those rules so far as they apply to the exercise of any plan-making function." 35 In this regard, his Honour said: "[68] … the applicants rely upon s 47 of the WM Act , submitting that the section confers jurisdiction [on] the Court independently of the LEC Act . Section 47 provides that a challenge to the validity of management plans and exercise by a designated person of any plan-making function is to come before this Court. The applicant challenges the plan making function of the Minister assisted by and in association with the Commonwealth. The issue here is whether the Commonwealth is a designated person who exercised any plan-making function. [69] A 'designated person' is defined in s 47(8) to mean 'the Minister, a management committee, the Director-General or any person or body assisting or otherwise associated with any of them.' The applicants submit that the Commonwealth not only assisted, but also directed the Minister in relation to the making of the water management plan. The applicants also contend that the Commonwealth actively associated itself with the Minister in that endeavour as a partner or principal and by itself announcing publicly and promoting the ASGE. [70] However, neither the Commonwealth, nor its officers are capable of exercising any such plan-making functions under the WM Act . The Act is a State act and the reference in s 47(8) to 'any person or body assisting or otherwise associated with' the Minister, a management committee or the Director-General is a reference to individuals or instrumentalities of the State. Consequently s 47(4) of the WM Act does not confer jurisdiction on this Court to hear claims against the Commonwealth. I agree with the Commonwealth's submissions that s 47 is not a source of jurisdiction. Even if there was a tenable argument that s 47 conferred jurisdiction (which there is not) such jurisdiction is removed by operation of s 9(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth)." 36 And: "[73] It is clear that the WM Act itself does not confer inherent jurisdiction on the Land and Environment Court. The Commonwealth correctly submits that the Court's jurisdiction under the WM Act is conferred only by ss 335 and 336. Section 335 is plainly irrelevant. Under s 336 the Court has jurisdiction to restrain a breach of the WM Act . The alleged breach of s 336(1) of the WM Act by the Commonwealth does not provide any valid foundation for contending that the Court has jurisdiction to grant the relief sought by the applicants against the Commonwealth because the Commonwealth cannot breach the Act." 37 The applicants also invoked the ancillary jurisdiction under s 16(1A) of the Land and Environment Court Act 1972 (the "L&E Court Act"). In this respect, his Honour held: "[83] There is nothing in the language of the Land and Environment Court Act which shows an intention of the New South Wales Parliament [to] confer jurisdiction to determine the claims made by the applicants against the Commonwealth in these proceedings. None of the claims against the Minister or the State are in any way contingent upon the claims made or the relief sought against the Commonwealth. Resolution of the claims against the Commonwealth is not a necessary step to the determination of the claims against the Minister or the State. [84] Moreover, the Achieving Sustainable Groundwater Entitlements ('ASGE') Joint Programme made between the Commonwealth and the State on 4 November 2005, which was tendered during argument shows that the Commonwealth's role is to provide funding for the implementation of the NWI. The State's role is, inter alia, to help achieve the program by its contribution and conduct of the ASGE project; and the Commonwealth's role is to support the project by funding. But it is only the Minister Administering the WM Act who can make a management plan under that Act. [85] Even if s 16(1A) of the Land and Environment Court Act did confer jurisdiction on this Court to hear the claims, that provision would be invalid in so far as it was said to confer federal jurisdiction on this Court. Any such jurisdiction must be found in s 39(2) of the Judiciary Act , which I have already determined in [79] to be of no assistance to the applicants in this matter. It follows that the Land and Environment Court Act does not confer jurisdiction on this Court to determine claims made against the Commonwealth in these proceedings. [86] As I have rejected all of the grounds of jurisdiction put forward by the applicants in these proceedings, it follows that this Court lacks the power to hear the claims made against the Commonwealth." 38 It is convenient at this point to note that Lloyd J's comment at [85] to the effect that s 16(1A) of the L&E Court Act is invalid insofar as it confers federal jurisdiction is not, in my opinion, correct. The task, as his Honour accurately put it in the next sentence, by reference back to his Honour's analysis at [79], is to identify the scope of the federal jurisdiction invested by s 39(2). Insofar as s 16(1A) of the L&E Court Act extends the "limits" of that Court's jurisdiction in State law, the invested federal jurisdiction is also extended.

Standing 39 His Honour's findings on the issue of standing were as follows: "[92] The applicants claim that they are each persons who have common law standing over and above the interest of other persons for various reasons. The applicants contend that their property in their water licence and their share of the water in the aquifer acquired or abridged or interfered in is recognised in certificates of title. Sufficient standing is said to exist due to the applicants having a 'right' not to have [their] water use abridged by the Commonwealth under s 100 of the Constitution. The applicants argue that it follows that the 'right' expressly recognised by the Constitution is sufficient to give standing to sue when each applicant claims it asserts such right in this case. [93] Further and in any event the applicants contend that it is not appropriate to decide issues about standing in an application to dismiss, raised by arguments such as those of the Commonwealth which are contentious or undecided, or on the facts as asserted may or may not exist. [94] It is clear, in my opinion, that a member of the public will have standing to bring an action challenging the validity of an Act of Parliament or of the Commonwealth Executive only if he or she can establish that the statute/Executive action affects her or his private rights and interests ( Davis v Commonwealth (1986) 61 ALJR 32 and Croome v Tasmania at 126-7). In Davis , the question arose whether the plaintiffs had standing to challenge the validity of a Commonwealth Act. Gibbs CJ stated, at 23: 'The traditional view is that a member of the public has standing to bring an action challenging the validity of an Act of Parliament only if he establishes that the statute affects his private rights or interests or, on a rather more liberal view of the matter, only if he establishes that he is more particularly affected than other people.' [95] After referring to analogous cases, Gibbs CJ observed, at 35-36, that: '… [A] person has standing to bring an action of that kind if he has a special interest in the subject-matter of the action, but that a mere intellectual or emotional concern would not suffice to give locus standi: Australian Conservation Foundation v Commonwealth [(1979) 146 CLR 493] at 526-31, 537-40, 547-52; Onus v Alcoa of Australia Ltd [(1981) 149 CLR 27] at 35-8, 41-3, 43, 44, 60-2, 72-4; cf at pp 49-56. A strong belief on the part of the plaintiffs that the Act is offensive and undesirable as well as unconstitutional would not in itself give them standing to challenge its validity. However it was submitted on behalf of the plaintiffs that as Aboriginals, descendants of the indigenous inhabitants of this country, they have a special interest in objecting to a statute which is designed to assist the celebration of the settlement and occupation of Australia by peoples who were not indigenous to this continent. It was further submitted that this interest goes beyond a mere emotional or intellectual concern, and that the cultural and civic interests of the plaintiffs are affected. As at present advised, although I agree that the plaintiffs, as Aboriginals, are members of a class which may have a special interest in challenging the validity of the Act, I find difficulty in accepting that the interest is other than emotional or intellectual. Having regard to the principles which govern applications of this kind it is not necessary for me to express any concluded view whether the plaintiffs have an interest sufficient to give them standing; it is enough to say that it seems to me that the plaintiffs' argument cannot be dismissed as frivolous or hopeless - opinions may differ upon its acceptability and it is not plain and beyond debate that it must fail. …' [96] I have determined that this Court lacks the power to hear the applicants' claims against the Commonwealth. I am also asked to further determine whether the applicants have standing to seek relief against the Commonwealth. The Commonwealth submits that the question of standing must be determined. It is of the view that the applicants had an opportunity to raise an objection when Talbot J ordered that standing be determined as a separate question. I agree with the Commonwealth that the question of standing, having now been raised, must be determined. [97] The legislation and executive action, which the applicants seek to impugn in their claims against the Commonwealth relate solely to funding and administrative arrangements between the Commonwealth and the State of New South Wales. I am inclined to the view that those matters do not demonstrate a sufficiently affected interest. I conclude that the applicants lack standing to seek the relief against the Commonwealth in their amended application."

Reasonable Cause of Action 40 His Honour's findings with respect to this basis for summarily dismissing the proceedings, are set out in the following passage: "[98] Although it is not necessary for me to determine this issue, as I have determined that the Court lacks the power to hear the claims made against the Commonwealth, I accept the submissions of Mr Robertson, on behalf of the Commonwealth, that the Court should also dismiss or stay the applicants' application in so far as it concerns the Commonwealth on the basis it discloses no reasonable cause of action as against the Commonwealth or on the basis that it is frivolous or vexatious (par [5]). That is, I accept the Commonwealth's submissions which I have described in pars [18]-[26] above. Unlike PJ Magennis Pty Ltd v Commonwealth (1949) 80 CLR 382, the Commonwealth legislation challenged by the applicants does not authorise entry into any particular agreement and is unable to be characterised as a law with respect to the acquisition of property and, furthermore, the terms of the pleaded agreement do not specify acquisition on other than just terms. [99] I agree with the Commonwealth's submission that the applicant's case involves the attempted resurrection of the very claim which was rejected by the High Court in Pye v Renshaw - it is a claim that Commonwealth cannot by a grant or any other provision of the Constitution provide money to the State for the 'purpose' of inducing it to resume land on otherwise than just terms. Section 51(xxxi) does not attach to 'purposes'. It is a limitation that applies to laws characterised as laws with respect to the acquisition of property. The Commonwealth correctly submits that there is no Commonwealth legislation in issue here which could be characterised as such a law and that is an insurmountable obstacle to any claim founded on s 51(xxxi). [100] The applicants have failed to specify with any precision the basis upon which it is said that the NWC Act and the Financial Assistance Act are beyond the legislative competence of the Commonwealth. I do not think that any of the matters which the applicants rely upon disclose an action with any reasonable prospects of success against the Commonwealth. [101] The Commonwealth submits correctly, in my opinion, that the applicants' contentions regarding the lack of legislative power overlook a number of heads of Commonwealth legislative power and are bound to fail. Even if the applicants were correct in alleging that the Acts authorise payments for such purposes, I agree with the Commonwealth's submissions that the validity of the legislation would be unaffected. For the reasons advanced by Mr Robertson, I find that there is no cause of action." 41 At [98] his Honour adopted and applied the Commonwealth submissions which he had set out earlier in his judgment. It is sufficient to repeat the following: "[20] The Commonwealth submits that the applicants have failed to specify with any precision the basis upon which it is said that the NWC Act and the Financial Assistance Act are beyond the legislative competence of the Commonwealth. None of the matters that the applicants rely on, or appear to rely on, disclose an action with any reasonable prospect of success. In relation to the applicants' claim that the Acts are invalid by reason of the fact that the Commonwealth lacks legislative power, the Commonwealth submits that the applicants' contentions are based on the discredited reserve powers doctrine, overlook a number of heads of Commonwealth legislative power and are bound to fail. [21] In so far as the NWC Act and the Financial Assistance Act provide for the provision of financial assistance by the Commonwealth to the States, the Commonwealth submits that the relevant provisions fall within, inter alia, s 96 of the Constitution. It is noted by the Commonwealth that the only legislatively based conditions imposed upon the provision of financial assistance under the NWC Act and the Financial Assistance Act are those set out in ss 8 and 9 of the Financial Assistance Act and the applicant does not take issue with any of the conditions there specified. The Commonwealth says that the specification of conditions upon any grant to the States or the making of any other formal or informal arrangements between the States and the Commonwealth regarding those grants is otherwise to be determined by the Commonwealth Executive. The Commonwealth further submits that the payment or threatened payment of any money and the entry into agreements cannot give rise to any tenable claim as against the Commonwealth as the State of New South Wales would be obliged to pay money it received pursuant to such a grant into the Consolidated Fund and the manner in which and the purposes for which that money was appropriated and spent would be a matter entirely in the discretion of the State. [22] Alternatively, the Commonwealth submits that the provisions of the NWC Act and the Financial Assistance Act which provide for financial assistance to the States are supported by the appropriations power, s 81 of the Constitution. The weight of authority, according to the Commonwealth, favours the proposition that s 81 and/or the incidental power conferred by s 51(xxxix) confer power upon the Commonwealth Parliament to appropriate and spend money for any purpose it authorises ( Victoria v Commonwealth (1975) 134 CLR 338 at 369-370 per McTiernan J and at 419 and 424 per Murphy J and Combet v Commonwealth (2005) 224 CLR 494 at [5] per Gleeson CJ. See also Attorney-General (Vic) (1945) 71 CLR 237 at 256 per Latham CJ and at 273 per McTiernan J). Alternatively, due to the impossibility of establishing standing to challenge an exercise of that power, the Commonwealth submits that that limitation is not one which is justiciable by this Court or by any other Court ( Victoria v Commonwealth at 388-391 per Stephen J and at 410 per Jacobs J). [23] In any event, the Commonwealth submits that it has power with respect to national schemes for natural resource management for a number of reasons. The financial assistance provisions are also supported by the legislative power conferred by s 51(xxxix) in conjunction with s 61 of the Constitution as laws which are incidental to the execution of the executive powers of the Commonwealth. Relevantly, the powers conferred upon the Commonwealth Executive power to engage in enterprises and activities peculiarly adapted to government of a nation and which cannot otherwise be carried out for the benefit of the nation ( Davis v Commonwealth (1988) 166 CLR 79 at 111 per Brennan J and Victoria v Commonwealth at 396-397 per Mason J). The funding of national schemes for natural resource management is to be characterised as an activity of that nature and thus falls within the power conferred by s 61. Section 51(xxxix) authorises Parliament to legislate in aid of such an exercise of executive power. Alternatively, the so called "implied nationhood power" supports those provision[s] for similar reasons: Davis v Commonwealth at 93-95 per Mason CJ, Deane and Gaudron JJ and Victoria v Commonwealth at 397 per Mason J and 412-413 per Jacobs J. In so far as the applicants seek to impugn the validity of the provisions of the NWC Act , which create and confer functions upon the NWC, the Commonwealth submits that those provisions are at least supported by one or more of the powers referred to above. Similarly, the provisions of the Financial Assistance Act which provide for entry into financial assistance agreements are similarly at least supported by one or more of those powers. [24] The Commonwealth notes that the applicants rely upon the limitation in s 51(xxxi) of the Constitution ('the acquisition of property on just terms') and the Commonwealth submits that the limitation in that section is not engaged by 'purposes' or 'agreements'. Its relevance depends upon there being a law of the Commonwealth which may be characterised as a law with respect to the acquisition of property. In any event, the Commonwealth submits that it may be doubted that any rights possessed by the applicants constituted property. It is further submitted that even if there were a relevant proprietary right, regulation under the Plan made pursuant to s 50 of the WM Act merely involved the prohibition or control of a particular use of or particular acts upon property. Section 51(xxxi) requires 'acquisition' for the purposes of the Commonwealth and some interference with or adverse effect upon a pre-existing right which an owner enjoys in relation to her or his property is not sufficient ( Commonwealth v Tasmania ( Tasmanian Dam Case ) (1983) 158 CLR 1 at 145 per Mason J, with whom Murphy and Brennan JJ agree; note also Deane J at 283). The Commonwealth made further submissions that the applicants have not addressed all of the significant obstacles to any reliance upon s 51(xxxi). [25] In relation to the applicants' contention that some or all of the provisions of the NWC Act and the Financial Assistance Act contravene the constitutional guarantee or prohibition which appears in s 100 of the Constitution, the Commonwealth refers to Commonwealth v Tasmania , where an argument similar to that put by the applicants in this case was rejected. The Commonwealth submits that the NWC Act and the Financial Assistance Act as enacted were not made, nor capable of being made, under ss 51(i) and 98. That approach is, it is submitted by the Commonwealth, consistent with the approach to s 99 enunciated in Morgan v Commonwealth (1947) 74 CLR 421. [26] In relation to the allegations that the Commonwealth executive has acted unlawfully, in that it entered into the NWI Agreement and the Overallocation Agreement, but lacked power under the Constitution to do so, and abridged the rights of the State and the residents of the State to the reasonable use of the waters of the State in contravention of the constitutional guarantee in s 100, the Commonwealth submits that those contentions are bound to fail for the reasons given above." 42 Contrary to the submissions of the applicants, in my opinion his Honour did regard summary dismissal as an alternative basis for making the orders he made. Although he commenced at [98] by saying that it was "not necessary … to determine this issue", he proceeded to do so. He concluded, with reasons, that there was no law that could be characterised as a law with respect to the acquisition of property and adopted the Commonwealth's submissions in this respect. He further concluded, with reasons, that s 100 did not apply. 43 It is also convenient at this point to deal with a suggestion that his Honour did not apply the correct test for summary dismissal. The formulation that the applicants' case "discloses no reasonable cause of action", referred to in his Honour's judgment at [98] is appropriate. Indeed, his Honour applied, by express reference in [98], the Commonwealth submission set out at [18] of his Honour's judgment that the test was that the applicants "claims are so untenable that they cannot possibly succeed". 44 The respondents did not seek to uphold his Honour's finding that the proceedings were frivolous or vexatious.

The Jurisdiction Issue 45 As I have noted above, Lloyd J commenced his analysis with s 39(2) of the Judiciary Act. Section 39(1) of the Judiciary Act expressly states that "except as provided", relevantly in s 39(2), State Courts cannot exercise federal jurisdiction. This provision implements the legislative power conferred by s 77(ii) of the Constitution. The Parliament of New South Wales cannot confer federal jurisdiction on a State court. Nor does the L&E Court Act purport to do so. 46 The relevant starting point is the identification of the "limits of the jurisdiction" of the L&E Court within the meaning of s 39(2). The primary provisions are s 16(1) and s 16(1A) of the L&E Court Act which confer jurisdiction on the Court. These subsections state: "16(1) The Court shall have the jurisdiction vested in it by or under this or any other Act. (1A) The Court also has jurisdiction to hear and dispose of any matter not falling within its jurisdiction under any other provision of this Act or under any other Act, being a matter that is ancillary to a matter that falls within its jurisdiction under any other provision of this Act or under any other Act." 47 It is necessary to first identify either jurisdiction vested in the Court by statute (s 16(1)) or a "matter that is ancillary to a matter" within the Court's jurisdiction conferred by statute (s 16(1A)). The applicants' reliance on s 22 and s 23 of the L&E Court Act is misplaced. These sections confer powers, not jurisdiction. (See eg National Parks and Wildlife Service v Stables Perisher Pty Ltd (1990) 20 NSWLR 573 at 582, 586.) 48 The written and oral submissions contain a range of matters which, in various ways, assert, or suggest, a jurisdictional foothold for the proceedings against the Commonwealth. 49 The applicants clearly invoke the jurisdiction of the L&E Court to give relief by way of judicial review of an administrative decision, relevantly the making of the 2006 Plan. There is no jurisdictional challenge to that pleading, save insofar as the Commonwealth has been joined. 50 The applicants maintained in this Court their submission that s 47 of the Water Management Act conferred jurisdiction with respect to a challenge to the validity of the 2006 Plan. This submission should be rejected although, contrary to the applicants' submissions, this does not impinge upon the case against the Commonwealth. 51 The sections of the Water Management Act relied upon include a range of provisions: the power to grant an injunction requiring a landholder to comply with a direction (s 335); the power to grant orders to remedy or restrain a breach of the Act (s 336); the power to hear appeals from ministerial decisions (s 368); and an exclusive judicial review jurisdiction with respect to the validity of management plans (s 47). In all these respects the actual conferral of jurisdiction is to be found in the L&E Court Act itself. (See s 17(c), s 20(1)(dfl) and s 20(2) of that Act.) 52 One of the submissions put for the applicants in this Court was circular and impermissible. It was submitted that once a Constitutional issue was raised upon the pleading or, alternatively, once the Commonwealth filed its notice of motion seeking summary dismissal, the L&E Court was exercising federal jurisdiction and, accordingly, the L&E Court had jurisdiction to determine the whole case as pleaded. 53 The Court had jurisdiction to determine its jurisdiction and, as the Commonwealth was being sued and sought by Notice of Motion the orders eventually made, s 39(2) conferred jurisdiction to determine the matters so raised. 54 Counsel for the applicants appeared to suggest that this somehow meant that s 39(2) had the effect that the Court could proceed to determine everything raised against the Commonwealth in the Points of Claim pursuant to s 39(2). 55 On the authorities, s 39(2) operates so that once federal jurisdiction is attracted, the whole proceedings must be characterised as federal, except for any part that constitutes a separate matter. (See Felton v Mulligan (1971) 124 CLR 367 at 373, 383; Moorgate Tobacco Ltd v Phillip Morris Ltd (1980) 145 CLR 457 at 472-473.) However, that does not mean that once a State court is exercising federal jurisdiction on one basis, it can hear any other federal matter that happens to be pleaded. 56 Section 39(2) confers federal jurisdiction within what the section itself calls "limits". As Barwick CJ said in Commonwealth v Rhind (1966) 119 CLR 584 at 598, once there is identified a "limit" to the State jurisdiction of a State court "the invested federal jurisdiction will shrink pro tanto". (See also Minister of the State for the Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459 at 505 per Dixon J.) 57 It is necessary to commence by identifying the "subject matter" of the L&E Court's jurisdiction, within the meaning of s 39(2). The applicants submitted that the relevant "subject matter" was "compulsory acquisition on just terms of land, including rights in connection with the land". Alternatively, the "subject matter" was "challenges to water management plans" and "ground water management". With respect to the former the applicants drew attention to the Land Acquisition (Just Terms Compensation) Act 1991, particularly ss 66, 67 and 64. With respect to the latter the apellants drew attention to the Water Management Act particularly ss 47, 335, 336 and 368. 58 The submissions in this Court assumed that a water entitlement was capable of being an interest in land within the Land Acquisition (Just Terms Compensation) Act. The provisions relied upon are, as the respondent submitted, a legislative scheme for the making of claims and the determination of the amount of compensation payable pursuant to the Act. This "subject matter" cannot be stated in the manner for which the applicants contend ie any matter "involving compulsory acquisition on just terms", for purposes of determining whether Commonwealth conduct, either legislative or executive, infringes the guarantee found in s 51(xxxi) of the Constitution. The "subject matter" of the Court's jurisdiction is a particular State legislative scheme. The "subject matter" is not "compulsory acquisition on just terms". 59 Similarly, the characterisation of the relevant "subject matter" of the Water Management Act is inappropriate. That Act does not confer a jurisdiction that is capable of being characterised as "water management". Again, the "subject matter" of the Court's jurisdiction is a particular State legislative scheme. It is not "groundwater management" or "challenges to water management plans". 60 Each of the specific powers of this Act arise within a particular statutory framework which cannot be characterised as "groundwater management" and then transmogrified into a conferral of jurisdiction with respect to any claim that impinges upon the management of water or groundwater. 61 Alternatively, the applicants contend that the Judiciary Act confers federal jurisdiction on a State court with respect to any subject matter within the court's jurisdiction, unless the State legislation imposes an "express limitation" upon the jurisdiction of that court. Further, it is submitted, there was no such "express limitation" to be identified in the State legislation under consideration. This submission was said to be based on some observations of Sackville J, with whom Moore and Kiefel JJ agreed in Ly v Jenkins [2001] FCA 1640; (2001) 114 FCR 237. 62 In Ly v Jenkins, Sackville J said, after referring to prior authority, at [91]: "The question of whether any relevant limitations in jurisdiction exist is to be determined by reference to State law. The authorities proceed on the basis that there must be an affirmative limitation on the jurisdiction of the relevant court. In each of the cases to which I have referred, the limitation relied on to conclude that the State court had not been invested with Federal jurisdiction was found in a specific statutory provision, such as that imposing a time limit for summary prosecutions or specifying a monetary limit to the jurisdiction of the State court. By the same token, none of the cases considered whether limits on the jurisdiction of State courts can be imposed or come into existence otherwise than by means of an express enactment." 63 One of the authorities to which Sackville J referred was the joint judgment of Isaacs and Rich JJ in Commonwealth v Dalton (1924) 33 CLR 452, where their Honours said at 456: "To find the limits of the jurisdiction of a State Court, we have to examine its constitution, which determines its character, the subject matter with which it is authorised to deal, the locality within which it may act or in respect of which it may adjudicate, the persons over whom its authority extends, and any other prescribed regulations limiting its exercise of judicial power. The totality of these provisions mark out the area of curial jurisdiction, and therefore define the limits of the jurisdiction as adopted by the Federal Parliament for the purposes of Federal jurisdiction. The Federal jurisdiction conferred by sec 39(2) automatically covers the area occupied by State jurisdiction so adopted, and does not exceed those limits." 64 The applicants' contentions in this Court appear to interpret Sackville J's reference to "an affirmative limitation" and "express enactment" as if his Honour was requiring a form of words that is, in terms, expressed to be a "limitation". I do not understand his Honour to have advanced any such proposition. Indeed, his Honour, at [121], proceeded on the basis that a "State law can implicitly mark out the limitations of the jurisdiction of" the relevant State court. 65 The passage from Commonwealth v Dalton, quoted above, expressly refers to the need to examine the constitutive statute of a State court, whereby "the subject matter with which it is authorised to deal" is 'determined'. This reference to "subject matter" reflects the same words in s 39(2) itself which uses the phrase "such limits … as to … subject matter". In my opinion, the conferral of jurisdiction with respect to a subject matter is an "express enactment" or an "affirmative limitation" in the sense Sackville J used those words in the passage quoted above. 66 Of greater substance is the applicants' reliance upon s 16(1A) which confers an "ancillary" jurisdiction. The applicants' basic contention in this regard is that the claim against the Commonwealth is an essential prerequisite to some of the claims made against the State of New South Wales and the State Minister. 67 As I have indicated above, the L&E Court is exercising federal jurisdiction, under s 39(2) of the Judiciary Act. Nevertheless, the scope of the jurisdiction so conferred requires the identification of, relevantly, the limits of the subject matter with which the Court has jurisdiction to deal. If the claim of invalidity of Commonwealth conduct, whether legislative or executive, is appropriately characterised as "ancillary" to the challenge which the applicants make to the validity of the 2006 Plan then, pursuant to s 16(1A) of the L&E Court Act, that Court has jurisdiction to determine the federal issues. 68 It is not necessary to reach the level of 'essentiality', it is sufficient if the issues are ancillary. However, the applicants contend that the challenge to the Commonwealth conduct was an essential step with respect to some of the ways in which they seek to challenge the validity of State conduct. I have set out the pleadings above. If the challenge can be characterised as "essential", I cannot see how it would not be "ancillary" to the challenge to State conduct. 69 In Scharer v New South Wales [2001] NSWCA 360; (2001) 53 NSWLR 299 at [51] Stein JA characterised s 16(1A) as a "legislative response" to this Court's decision in Stables Perisher supra. The legislative response was a measured one. 70 In Stables Perisher this Court held, by reference to the case law with respect to the jurisdiction of the Federal Court, that the L&E Court did not have a "pendant" or "accrued" jurisdiction (at 580F, 587A-B). The legislature took no steps to confer any such jurisdiction upon the L&E Court, even though the judgment in Stables Perisher expressly raised the analogy for consideration. 71 Furthermore, the New South Wales Parliament did not adopt the terminology of s 32 of the Federal Court of Australia Act 1976 (Cth) which conferred additional jurisdiction with respect to "matters … that are associated with matters in which the jurisdiction of the Court is invoked". 72 In Stables Perisher at 580 Gleeson CJ expressly referred to s 32 of the Federal Court of Australia Act with respect to the "associated" jurisdiction and stated "there is no corresponding provision in the Land and Environment Court Act" (580F). As Gleeson CJ pointed out in Nix & Dunn v Pittwater Council (1994) 84 LGERA 199 at 204, it appears that s 32 was used as a model in one respect and the decision to use the word "ancillary" rather than "associated" was deliberate. I agree with Gleeson CJ that the word "associated" is more expansive than the word "ancillary". (See Nix at 204-205.) 73 Questions of fact and degree arise in determining whether or not a matter is "ancillary" to another matter, in a sense applicable to the jurisdiction of a court. This Court has approved on a number of occasions the dictionary definition of the word as "incidental, accessory or auxiliary". (See Nix at 205; Scharer at [51]; Minister for Local Government v South Sydney City Council [2002] NSWCA 288; (2002) 55 NSWLR 381 [160] and see NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] NSWLEC 5; (2001) 112 LGERA 403 at [28] subpar (c).) 74 There is a concept of subservience implicit in the idea of an "ancillary matter". (See Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12 at 14, referred to with approval by Gleeson CJ in Nix at 205; and by Pearlman J in NTL at [28] (c), in turn referred to with approval in this Court in Minister for Local Government v South Sydney City Council at [160].) 75 For present purposes it is sufficient to state that, where the determination of a legal issue constitutes an essential step in the course of determining an issue that is within the jurisdiction of a court, then the determination of the former will be "ancillary" to the determination of the latter. That is the applicants' contention in the present proceedings. 76 I have quoted at [37] above, Lloyd J's conclusion at [83] of his judgment, that the "resolution of the claims against the Commonwealth is not a necessary step to the determination of the claims against the Minister or the State". The applicants challenge this finding. 77 The formulation "necessary step" has appeared in a number of judgments in the L&E Court in statements to the effect that resolution of the claims against the Commonwealth constitutes a "necessary step" to the determination of the claims against the State. (See eg Stables Perisher at 582; Minister for Minerals and Energy v Vaughan-Taylor (1991) 73 LGERA 115 at 123; NTL at 28.) 78 I doubt whether the applicants need to rely on s 16(1A) in the case of a legal issue which is appropriately characterised as an "essential step" in the case against the State. 79 In Stables Perisher Gleeson CJ said (even before s 16(1A) was enacted) at 582: "The Land and Environment Court, of course, in resolving a claim that is properly brought within its jurisdiction, has the power and the duty to decide all questions of fact or law that need to be decided in order to deal with that claim. Such questions might be questions of such a nature that they could also very well have arisen for decision in another forum. There is nothing unusual about that. There are many tribunals of limited statutory jurisdiction which, in exercising that jurisdiction, may find themselves called upon to resolve issues of fact or law that could also have arisen, in another way, elsewhere." 80 To similar effect, in Vaughan-Taylor at 123 Meagher JA quoted this passage and added: "The Land and Environment Court has jurisdiction to determine any question which arises incidentally to a matter in which it has jurisdiction." 81 Nevertheless, the case was argued on the basis of the ancillary jurisdiction. Such jurisdiction would, at the least, encompass an "essential step" required to be taken in the determination of an issue otherwise within jurisdiction. 82 The way in which the issue has been argued both before Lloyd J and in this Court does not raise a question about the outer boundaries of s 16(1A). If the allegation of constitutional invalidity of Commonwealth conduct is a matter which, on the applicants' case, needs to be determined for purposes of resolving the challenge to the validity of the 2006 Plan, then the matter falls within the jurisdiction of the L&E Court conferred by s 16(1A). That is the way the proposition was advanced in these proceedings. At [83] his Honour rejected the contention without elaboration of reasons. 83 The principal matter relied upon in submissions in this Court was the pleading to the effect that the State Minister took into account an irrelevant consideration, namely invalid Commonwealth legislation and, perhaps, ineffective conduct in the form of executive agreements, when making the 2006 Plan. 84 Whether or not a statutory decision-maker can be said to have taken into account irrelevant considerations usually requires attention to the whole of the legislative scheme and may raise questions of fact and degree that involve an assessment of the actual decision-making process. No attempt to do this was made either before Lloyd J or in this Court. 85 In my opinion, it is not appropriate to determine such a question in the abstract without detailed attention to the legislative scheme and to the facts of the decision-making process. It is sufficient for present purposes to say that the respondent did not attempt to do so in this Court and, on the materials before this Court, did not do so before Lloyd J. It is one thing to determine that, on a strike out test, the applicants' case in this respect cannot succeed as a matter of law. It is another thing to determine that the factual basis for jurisdiction does not exist. In the circumstances it was not appropriate for Lloyd J to find that the claim against the Commonwealth was not a step in the case against the State for the purposes of determining the jurisdictional challenge. 86 In my opinion, his Honour's conclusion that the L&E Court did not have jurisdiction pursuant to s 16(1A) should not have been drawn on the basis of the case advanced by the Commonwealth.

Irrigation Waters Issue 87 The first basis upon which the applicants contend that the Commonwealth conduct offends a prohibition upon its legislative and executive competence is s 100 of the Constitution, which provides: "The Commonwealth shall not, by any law or regulation of trade or commerce, abridge the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigation." 88 No issue arises in this case as to whether or not groundwater could fall within the concept of "waters of rivers" within s 100. 89 The focus of attention in the present proceedings, for the proposition that the applicants had no prospects of success, was upon the words "by any law or regulation of trade or commerce". This is a matter that has been authoritatively determined by the High Court in Morgan v Commonwealth (1947) 74 CLR 421 at 455, where the Court decided that, by reason of these words, contained in each of ss 98 to 102 of the Constitution, the restraint on Commonwealth legislative power should be understood as applying only to laws which can be made under the power conferred by s 51(i), ie the trade and commerce power. 90 The applicants do not contend that the laws in question in the present case are capable of answering that description. 91 Mason, Murphy and Brennan JJ accepted the authority of Morgan in Commonwealth v Tasmania (1983) 158 CLR 1 at 153-154, 182, 248-249. The applicants relied upon a statement by Deane J in that case at 251 suggesting that there may be occasion for the High Court to reconsider the clear statement in Morgan. Deane J found that issue unnecessary to decide, because the legislation under consideration did not answer the description of a "law or regulation of trade or commerce". The applicants relied on the fact that there was no majority in favour of affirming Morgan. (See also Permanent Trustee Australia Ltd v Commissioner of State Revenue (Vic) [2004] HCA 53; (2004) 220 CLR 388 at 426 [96].) 92 However, this Court is bound by Morgan and the propositions based on s 100 for which the applicants contend cannot be accepted. Accordingly, none of the agreements or legislation challenged offend the prohibition in s 100 of the Constitution. 93 In any event, the conclusion of Deane J is also applicable. No statute or agreement relied upon by the applicants can be characterised as a "law or regulation of trade or commerce". The objective of ensuring sustainable yield in national water resources is not of that character.

The Acquisition of Property Issue 94 This case proceeded on the assumption that the entitlements to draw water from the Lower Murray Groundwater Source under the Water Act 1912, previously held by the applicants, constituted "property" within the meaning of s 51(xxxi). It was further assumed that the Commonwealth legislation referred to is capable of constituting an "acquisition" of such property within the meaning of s 51(xxxi). Specifically, the case proceeded without reference to the proposition that there is no acquisition of property when what is involved is the "adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity"; (see Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 at 510; Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134 at 161); nor when what is involved is an "extinguishment" rather than an "acquisition". (See eg Health Insurance Commission v Peverill (1994) 179 CLR 226.) Finally, there was no issue before this Court as to whether the particular formula for reduction in entitlements, together with the compensation payable, constituted "just terms". 95 Lloyd J held that the reasoning in Pye v Renshaw (1951) 84 CLR 58 was applicable and, accordingly, that the applicants' proceedings revealed no reasonable cause of action. His Honour also held that the High Court's reasons for reaching a different conclusion in P J Magennis Pty Ltd v Commonwealth (1949) 80 CLR 382 did not apply in the present case. In my opinion, his Honour was correct and the decision in Pye v Renshaw does determine the outcome of this case. More recently Emmett J has come to the same conclusion on a comparable legislative scheme in Spencer v Commonwealth [2008] FCA 1256. 96 I have set out at [40] above the distinction Lloyd J drew at [98]-[99] between the position in Magennis and that in Pye v Renshaw in their application to the present case. His Honour emphasised the fact that in Magennis the Commonwealth statute approved a particular agreement, which made express provision for the acquisition of land. That statute could, accordingly, be characterised as an act for the acquisition of property. On the other hand his Honour held that, as in Pye v Renshaw, there was not in the present case a law that could be characterised as a law with respect to the acquisition of property. In my opinion, his Honour was correct. 97 In Spencer Emmett J addressed the issue of reconciling Magennis and Pye v Renshaw. His Honour identified, in my opinion correctly, that the critical issue is the characterisation of a Commonwealth law in order to determine whether it can be said to be a law with respect to the acquisition of property. 98 His Honour went on to say: "[118] A State can acquire land or other property, by resumption or otherwise, on any terms authorised by its Parliament, whether just or unjust. If a State Act provides for resumption of land on terms which are thought not to be just, that is of no consequence legally: it cannot affect in any way the validity of the State Act or of what is done under it (see Pye v Renshaw (1951) 84 CLR 58 at 79-80). Further, the Commonwealth may provide money to a State under s 96 in order that the State may resume land otherwise than on just terms (see Pye v Renshaw (1951) 84 CLR 58 at 83), presumably because such a law, not requiring an appropriation of property as a condition of a grant of financial assistance, is not a law with respect to the acquisition of property. However, there is no substance in the proposition that a law that is for giving financial assistance to a State or States under s 96 is, by that reason alone, therefore not a law with respect to the acquisition of property (see Magennis Pty Ltd (1949) 80 CLR 382 at 403). Further, it would appear to be ultra vires the legislative power of the Commonwealth to authorise a grant under s 96 pursuant to an agreement, or to authorise an agreement, that requires a State to use its law making powers to acquire property on unjust terms , because such legislation would be with respect to the acquisition of property (see Magennis Pty Ltd (1949) 80 CLR 382 at 399 and 402-403). [119] There appears to be a distinction between: - a grant made on the basis or an understanding that a State may use the grant to assist in the financing of acquisitions of property otherwise than on just terms , (which is, subject to other provisions of the Constitution , valid because it is not a law with respect to the acquisition of property otherwise than on just terms) and - a grant made on the condition that a State acquire property on terms that are unjust (which is invalid because it is a law with respect to the acquisition of property otherwise than on just terms). (See generally the decisions of the High Court of Australia in Magennis and Pye v Renshaw ). [120] Accordingly, it may be arguable that an agreement between the Commonwealth and a State will be invalid if, as a condition of accepting a grant of financial assistance, the State agrees to acquire property otherwise than on just terms. Thus, an agreement between the Commonwealth and a State whereby the Commonwealth agrees to offer a money grant by way of financial assistance under s 96 in order to induce a State to exercise its powers to resume land on terms that are not just is arguably invalid. [121] If a Commonwealth law authorises the making of grants under s 96 on the condition that there is an agreement with a State as to the terms of that financial assistance, the Commonwealth law would ordinarily be interpreted to require a valid agreement. If a Commonwealth law is silent as to whether the agreement may provide for the acquisition of property otherwise than on just terms, the Commonwealth law should be interpreted to authorise only the making of agreements that impose conditions on the granting of financial assistance that would not be constitutionally invalid under s 51 (xxxi) if they were imposed directly as a condition of a grant by a Commonwealth law made under s 96 (see Evans v State of New South Wales [2008] FCAFC 130). [122] Thus, a purported agreement imposing a requirement on a State that it acquire property on unjust terms as a condition of the Commonwealth's providing financial assistance would be ultra vires the power to enter into agreements under such a Commonwealth law. For that reason, the issue of the Constitutional validity of such an agreement need not arise directly in such a case. Such a Commonwealth law would not be invalid by reason of s 51 (xxxi), because it would not authorise the making of unconstitutional agreements. If a Commonwealth law did expressly, or by necessary implication, authorise the making of unconstitutional agreements, that law would be invalid. However, none of that will lead to the law of a State being invalid, unless the operation of that State law is dependant upon the existence of a valid agreement with the Commonwealth (see Magennis's case)." [Emphasis in original.] 99 I agree with his Honour's analysis. 100 In the present proceedings, the applicants' contention that the NWC Act is invalid is the basis both for its case against the Commonwealth directly and for the contention that the Minister took into account irrelevant considerations when promulgating the 2006 Plan. 101 In each respect the first step is to inquire whether it is reasonably open to characterise the relevant Commonwealth act as a law with respect to the acquisition of property. (This was also the critical consideration in Spencer at [154], [158], [171]-[172].) 102 The Commonwealth statute upon which the applicants relied in submissions to this Court was the NWC Act, s 24 of which provides: "24(1) The functions of the CEO are: (a) to administer financial assistance, awarded by the Minister to particular projects relating to Australia's water resources, from: (i) the Australian Water Fund Account; or (ii) any other Commonwealth program referred to in subparagraph 7(1)(d)(ii); and (b) to manage the day-to-day administration of the NWC. (2) All acts and things done in the name of, or on behalf of, the NWC by the CEO are taken as having been done by the NWC." 103 Section 24(1) confers upon the Chief Executive Officer of the Commission the function of administering financial assistance for water resources projects. This legislation contains no reference to the acquisition of property or to the entry into agreements. 104 Section 24(1), upon which the applicants primarily relied, empowers the CEO to administer financial assistance as awarded by the Minister to particular projects. That occurred pursuant to the terms of the Funding Agreement, not pursuant to the Act. The fact that the CEO executed the Funding Agreement on behalf of the Commonwealth does not change the position. 105 In written submissions the applicant referred to recitals B and H in the Funding Agreement as "evidence" that the Agreement was authorised by the Act. However, recital B does no more than repeat s 23(1) which identifies the administration of financial assistance to be a function of the CEO. Recital H does no more than affirm Commonwealth support for the Project. In any event, the key issue is to characterise the law, and the content of such recitals does not assist in this regard. 106 The applicants also relied on s 24(2), which provides that the acts of the CEO are acts of the Commission. The relevant act, it appears, was the CEO's signature of the Funding Agreement. However, this Agreement was said to be executed by him on behalf of the Commonwealth. It does not appear to me that s 24(2) is the source of the authority to sign the Funding Agreement. Section 24(2) refers to acts done in the name of the Commission. The Funding Agreement, although signed by the CEO, does not make the Commission a party. The relevant party is identified as the Commonwealth "as represented by and acting through the Commission …". 107 In my opinion, the NWC Act is not a law of the Commonwealth which is capable of answering the description of a law with respect to the acquisition of property within s 51(xxxi). 108 As I have noted above, in this Court, the applicants did not make submissions with respect to the Financial Assistance Act, although it is pleaded. This Act authorised the Commonwealth to enter into agreements with States for the provision of financial assistance for natural resources projects and was, it appears, the legislative authority for the Funding Agreement. No doubt this point was not pressed because, on the authority of Pye v Renshaw, it could not be contended that the Financial Assistance Act was capable of being characterised as a law with respect to the acquisition of property. 109 Neither the NWC Act, nor the Financial Assistance Act, relevantly, authorises or requires the State to acquire property, let alone to do so on unjust terms. Whether or not the Funding Agreement is authorised by either statute (or can otherwise be supported as an exercise of the executive power of the Commonwealth) was not directly in issue in these proceedings. The applicants impermissibly sought to treat the provisions of the Funding Agreement, which arguably required the adoption of the 2006 Plan, as if they were contained in a law of the Commonwealth within s 51(xxxi). If those provisions had been in the statute, Magennis may have been applicable. They are not and it is not. 110 The applicants have been unable to identify any law of the Commonwealth within s 51(xxxi). 111 It may be that the difference between Magennis and Pye v Renshaw does not fully reflect contemporary jurisprudence with respect to the preference of substance over form, particularly in matters involving Constitutional guarantees. (See Clunies-Ross v Commonwealth (1984) 155 CLR 193 at 201-202; Telstra Corporation Ltd v Commonwealth [2008] HCA 7; (2008) 82 ALJR 521 at [43] and cf Attorney-General (Vic); Ex rel Black v Commonwealth (1981) 146 CLR 559.) 112 There are statements by individual judges of the High Court which suggest that a different approach should now be taken. (See eg Commonwealth v WMC Resources Ltd [1998] HCA 8; (1998) 194 CLR 1 at 90 per Kirby J; Smith v ANL Ltd [2000] HCA 58; (2000) 204 CLR 493 at [74]-[75] per Kirby J and at [152], [180] per Callinan J.) Where, as is the case here, there is applicable High Court authority, this Court cannot choose to follow observations of this character. 113 With respect to the applicants' irrelevant considerations challenge to the 2006 Plan, there is an alternative basis for reaching the same conclusion. The validity of the Commonwealth legislation itself, and the validity (or more accurately, the existence) of any of the Commonwealth/State agreements (particularly the Funding Agreement), is irrelevant to the legal validity of the 2006 Plan. No doubt the agreements, especially the Funding Agreement, explain how the 2006 Plan came to be adopted. A legal defect in that process does not, however, determine whether the 2006 Plan is, nevertheless, a valid exercise of the statutory power. The applicants advanced no argument to justify their contention that the Plan is invalid because the Funding Agreement is invalid or non-existent. 114 In Magennis, when the statute was found to be unconstitutional, the agreement did not exist as an agreement and, accordingly, could not be adopted as an agreement by the State act. (See eg at 403-404 and 424-425.) The State act was inoperative because it depended on the existence of the Agreement. 115 Between Magennis and Pye v Renshaw the Commonwealth statute remained void. The legal effect of the formal Commonwealth/State agreement was not revived. What had changed was the State Act, which no longer depended for its own operation and effect upon the existence of a valid Commonwealth law. (See at 78-79.) This was also held to be the case for the equivalent Victorian statute in Tunnock v Victoria (1951) 84 CLR 42. (See also Durham Holdings Pty Ltd v New South Wales [1999] NSWCA 324; (1999) 47 NSWLR 340 at [97].) 116 In the present case the applicants advanced no submission to the effect that the operation and effect of the State Act, or the 2006 Plan, was based on a valid or extant Commonwealth/State agreement. Pye v Renshaw appears to me to be directly applicable. 117 The basis of the applicants' case in this regard, as I have noted, is the proposition that an invalid Commonwealth law and/or a non-existent Funding Agreement constitutes an irrelevant consideration with respect to the exercise of the Minister's powers under the State Act. (See pars [14]-[15] above.) I proceed, as the Court did in Pye v Renshaw, on the assumption that there is no valid Commonwealth law or extant agreement. 118 Nothing in the Water Management Act, or the 2006 Plan, suggests that the State Act, or administrative decisions pursuant to the Act, depend on the existence of a valid Commonwealth law or Commonwealth/State agreement. This was, as I have said, the critical difference between Magennis and Pye v Renshaw. 119 The submission that the State Minister took into account an irrelevant consideration is, in my opinion, equivalent to the assertion, rejected in Pye v Renshaw (see at 80), that the power under the State Act had been exercised for an improper purpose. In each case the decision is challenged as ultra vires. The contention should be rejected in the present case, on the authority of Pye v Renshaw. The validity of the Commonwealth law, or the existence of the agreement, is not legally relevant to the promulgation of the 2006 Plan. 120 On the assumption that any Commonwealth act was invalid and the Funding Agreement was not supported by legislation - I put to one side the executive power of the Commonwealth pursuant to s 61 of the Constitution - no State act or administrative decision, relevantly the 2006 Plan, would thereby be invalidated. 121 The second way in which the applicants challenge the Commonwealth's conduct - in this respect only directly and not as a basis for asserting the invalidity of the State decision - is as set out at [16] above in pars [30]-[34] of the Points of Claim. This pleading is, in my opinion, equivalent to par 15C of the Statement of Claim considered in Pye v Renshaw at 62-63 and 82-83. The applicants challenge the allocation of funds by the Commonwealth for the purpose of the acquisition of property. As Pye v Renshaw made clear (at 83), grants under s 96 of the Constitution are valid even if the funds will be used by the State to acquire property on terms which would not be acceptable under s 51(xxxi). The Court applied a long line of authority commencing with Victoria v Commonwealth (1926) 38 CLR 399. 122 Pursuant to the Funding Agreement, the Commonwealth provides funds for reducing entitlements and requires a formula of a character which was less beneficial for the applicants than a different formula would have been. Although grants are made on that basis, it does not follow that any Commonwealth legislation can be characterised as a law with respect to the acquisition of property or that the provision of the funds is invalid. (I put aside for the moment the issue of the standing of a citizen to challenge such funding agreements.) 123 The applicants submitted that Pye v Renshaw did not involve a Commonwealth/State agreement. There was one but it had been rendered inoperative by Magennis. The pleadings referred to the agreement, but pleaded its implications in terms of an "arrangement" between the Commonwealth and the State. (See at 60-63.) The High Court dealt with the relevant pleadings in a manner which indicated that there was no relevant difference between an agreement and an arrangement (at 81-83). 124 The conditions in the Funding Agreement which require the State to carry out the project in the manner which affected the applicants' water entitlements are set out at [26]-[29] above. The State did agree to implement a methodology for reducing entitlements that took into account historical extraction and for the payment of compensation on a particular basis. (See cl 1.6(b) and cl 1.7(e) set out at [23] above.) I can see no relevant difference between these provisions and the acquisition of land on the basis of the valuation formula, for which the Commonwealth/State arrangement made provision in Pye v Renshaw. (See at 60-63.) The State is entitled to accept funds from the Commonwealth on whatever basis it wishes. 125 Furthermore, the Commonwealth involvement in the joint scheme in Pye v Renshaw was of the same order as that in the present case in terms of both the Funding Agreement and the representation on the Committees that implemented the scheme. (See Pye at 82.) 126 The provisions of the Funding Agreement which I have set out above, indicate that the basic purpose of the scheme was to reduce water entitlements. This is reasonably analogous to the position in Magennis where "the whole subject matter of the agreement is the acquisition of property upon certain terms and conditions for certain purposes" (402) or that "the acquisition of the necessary land is the essence of the scheme" (424). 127 Nevertheless, the Commonwealth can, as determined in Pye v Renshaw (at 83) supply funds on condition that the States deploy the funds to acquire property on terms which the Commonwealth could not impose directly. No principled basis for distinguishing Pye v Renshaw in this respect has been advanced. I am unable to identify one. 128 Accordingly, even if, by reason of the application of s 51(xxxi) on some basis which I have been unable to discern, there was no extant Funding Agreement, which was the position in Pye v Renshaw, the applicants' challenge to the provision of Commonwealth funds cannot succeed. 129 Finally, the applicants plead that the Funding Agreement and the 2006 Plan were directed to avoiding the constitutional limits on Commonwealth power and that they constituted a mere "device". (See pars [19]-[20] above.) 130 The applicants submitted that the Commonwealth could not use the State legislation as a mere "device" to avoid the restrictions upon its own powers to acquire property. The reference to "circuitous device" appears in the judgment of Dixon J in Bank of New South Wales v Commonwealth (1948) 76 CLR 1 at 349, in the following passage: " … this is but a circuitous device to acquire indirectly the substance of a proprietary interest without it once providing the just terms guaranteed by s 51 (xxxi) of the Constitution when that is done." 131 See also the comment by Dixon J in British Medical Association v Commonwealth (1949) 79 CLR 201 at 210 that "The protection which s 51(xxxi) gives … cannot be broken down by indirect means". 132 Dixon J's formulation was adopted in the joint judgment in Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 at 510. Subsequent authority focuses upon his Honour's reference to the "indirect acquisition of 'the substance of a proprietary interest'". (See Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 513 at 595 and 633-634; see also Waterhouse v Minister for the Arts and Territories (1993) 43 FCR 175 at 183-184.) 133 The concept of "circuitous device", when used with respect to the acquisition power, has similar difficulties to those identified in s 92 territory. (See Miller v TCN Channel Nine Pty Ltd (1986) 161 CLR 556 at 575-578.) 134 However, it is sufficient to say that nothing has been identified which is capable of constituting a "device" of any kind. 135 I do not need, for present purposes, to set out the full context of this wide-ranging inter-governmental arrangement. (See Juliet Lucy Water Regulation: The Laws of Australia (2008) Thomson Reuters, at [14.9.540]-[14.9.590], [14.9.640]-[14.9.660], [14.9.800].) 136 The joint venture between the Commonwealth and the State is directed to providing financial assistance to carry into effect the Intergovernmental Agreement on a National Water Initiative which, as indicated in recital D of the Funding Agreement, is concerned with broad based water reform including: "water access entitlements and planning; water markets and trading, best practice water pricing; integrated management of water for the environment and other public benefit outcomes, water resource accounting; urban water reform; knowledge and capacity building and community partnerships and "adjustments" of the Funding Agreement. 137 The Commonwealth provides funding to the States pursuant to what is called the Water Smart Australia Programme. Recital F identifies the wide range of objectives of the Programme. I have also set out recitals G and H above. 138 The applicants contend that part of the arrangement is a "device" to acquire property. However, their submissions did not seek to elaborate how such a conclusion can be justified. The submissions amounted to no more than an assertion that, because they had lost something they once had, and the Commonwealth had a role, the process should be characterised as a "device". In view of the broad policy objectives of national significance which provide the context for the aspects of the Project which led to the reduction of their entitlements, no basis for such a conclusion has been articulated. 139 The water entitlements which existed before the 2006 Plan were a creature of a State act. If there was to be modification it had to be by State legislation. The Commonwealth encouraged, indeed may well have determined, a critical aspect of that modification. It did so by imposing a condition on its financial grant in order to implement a policy which it could not achieve without the co-operation of the State. This cannot be characterised as a "device" just because the Commonwealth could not achieve its policy objectives, or chose not to do so, by force of its own legislative power.

Standing 140 The applicants' submissions did not address a critical issue: whether any practical consequence could result from a declaration of constitutional invalidity were sufficient to establish any kind of interest on their part. Specifically, other than on the basis of the irrelevant considerations ground discussed above, they did not identify any reason why the alleged invalidity of Commonwealth legislation or conduct could or would impinge upon any State conduct under the Water Management Act, including the 2006 Plan. As in Pye (at 80), that Act, "is intended to take effect unconditioned by any Commonwealth legislation and irrespective of the existence of any agreement between the Commonwealth and the State". As Dixon J put it in Tunnock supra at 48: "I have not been able to understand how in point of principle the plaintiffs could obtain any foothold for their claim." 141 In Pye v Renshaw at 83, the joint judgment described the proposition that a private citizen has standing to challenge a Commonwealth appropriation or a grant under s 96 of the Constitution as "an assumption of dubious validity". 142 The applicants did not contest the authorities upon which Lloyd J relied particularly Davis v Commonwealth (1986) 61 ALJR 32 at 35-36 and Croome v Tasmania (1996) 191 CLR 119 at 126-127. (See also Aboriginal Community Benefit Fund Pty Ltd v Batemans Bay Local Aboriginal Council (1997) 41 NSWLR 494 at 499-501, Cameron v Human Rights and Equal Opportunity Commission (1993) 46 FCR 509 at 516-517 and cf most recently Combet v Commonwealth [2005] HCA 61; (2005) 224 CLR 494 at [96] per McHugh J and at [303]-[307], [311]-[313] per Kirby J; see also Spencer supra at [178]-[181].) 143 In their submissions to this Court the applicants did no more than assert they had a special interest "because they claim they suffer monetary and property loss by reason of the legislation the subject matter of the action". It is likely that this refers to the State act, but the submissions are imprecise in this regard. The applicants did not identify how either the NWC Act or the Financial Assistance Act operated to have this effect. No case was advanced for a right to challenge a Commonwealth/State agreement or to challenge Commonwealth/State financial arrangements. 144 In further submissions, the applicants referred to common law rights to water. How such could provide a basis for challenging Commonwealth legislation was not addressed. 145 No basis for overturning Lloyd J's conclusion on standing has been advanced.

2 Appeal dismissed with costs. 147 ALLSOP P: I have read the reasons in draft of the Chief Justice. I agree with the orders he proposes and with his Honour's reasons. 148 HANDLEY AJA: I agree with the Chief Justice. **********

26/02/2009 - Typographical error in act reference - Paragraph(s) 51

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