Irrationality
110 The final ground of appeal is a challenge to the validity of the Plan on the basis that it was irrational because it treated the groundwater source as a single body of water and provided for pro rata cuts in entitlement across the whole Area.
111 The Appellant's case on irrationality has its factual foundation in the limited interconnectivity within the aquifers the subject of the Plan. Although it is accepted that each aquifer is a single geological formation, it is submitted that the absence of interconnectivity is such that it is not rational to treat this formation as a single body of water for the purposes of a plan under the Act.
112 At its most extreme, the absence of interconnectivity is suggested by the evidence to have the consequence that it could take up to 100,000 years for a molecule of water to move from the eastern extremity of the Calivil and Renmark aquifer to its western extremity. There is a higher level of localised interconnectivity, although the expert evidence adduced on the part of the Minister before McClellan J did not suggest that interconnectivity, whether by means of lateral flows or vertical flows, was such that it was rational to treat the whole of the aquifer as if it were a single "water source" within the meaning of the Act.
113 Historically the groundwater system had been managed in a series of zones, with high levels of interconnectivity within each zone. A logical link could be established between the annual extraction within such a specific area and the annual recharge in that particular area. There was evidence that drawing the precise boundaries between such zones was a matter of some difficulty. Nevertheless, it was accepted by both experts that there were substantial differences between different areas. For example, at Darlington Point area in the east, licence holders could use a substantial proportion of their entitlements without affecting the sustainability of the water source in that region. Further to the west at Carrathool much stricter limits were required.
114 The position of the Minister was summarised in the evidence of Mr Scott Lawson, a hydrogeologist for the Department of Infrastructure, Planning and Natural Resources, who had been involved in the preparation of the Plan and had represented the Department on the Murrumbidgee Groundwater Management Committee. Mr Lawson accepted the existence of different effects in different regions:
"Recharge may be somewhat site-specific in that it does not occur everywhere at equal rates. Groundwater travels via throughflow to all parts of the groundwater system, with the result that extraction does not have to be precisely proportioned to match local recharge. While it is accepted that aquifer recharge and potential groundwater extraction are not evenly distributed across the plan area, each of the aquifer system components is interconnected. An activity in one area, or at one depth, will result in changed conditions elsewhere in the aquifer system. It was because of this unevenness but interconnectedness, that the groundwater model was developed. [Blue AB vol 2, p 386]."
115 Mr Lawson accepted that it was possible, but difficult, to manage the whole of the groundwater systems by zonal management:
"While it is not impossible to zone the aquifer system, determining the zones will be a matter of personal opinion influenced by a range of criteria and hydrogeological interpretation. This is because, from a technical perspective, the hyrdogeology is a continuum - there are no clear internal boundaries. Zones based on purely physical aquifer considerations are difficult to define on the surface. In any event the LMGMA lacks physical hydrogeological features on which to base zone boundaries for implementing critical aspects of the Plan. … A trade-off between the aquifer conditions and the definable physical and cultural surface features will necessitate less than ideal zonation. Even if zones were adopted, unless the zones were very small, differences would still occur within those zones such that some groundwater users in unstressed parts of a zone may still request additional zonation so that restrictions may not apply to them … The impact of pumping should not be the basis for defining long-term management zones, since a change in pumping distribution would necessitate a change of zones. [Blue AB vol 2, p 391]."
116 The expert called on the part of the Appellant had given evidence of an alternative method of management referred to as the "bandwidth method" which was described as follows:
"Two band levels are set, an upper band for non-pumping recovery and a lower limit for irrigation season drawdown. These are absolute limits. If the site specific bore or regional piezometer falls below these bands a cut back in groundwater extraction occurs, either on a particular regional or site-specific mandatory basis."
117 In this regard it is relevant to recognise that in addition to the overall water availability determination made by the Minister, which limits how much actual water can be drawn in any period under access licences, the Plan makes provision for local extraction limits in cl 36 which relevantly provides:
"36(1) The Minister may declare that, in order to protect water levels within these groundwater sources, local access rules are to apply in a defined area known as a local impact area.
(2) Local extraction restrictions will first apply once draw down or recovery depths exceed trigger levels specified by the Minister or two or more successive years, or unacceptable levels of draw down or recovery specified by the Minister are observed in a single year.
(3) Local extraction restrictions will apply to such an extent and for such time as to reduce the rate of pressure to climb, or in response to unacceptable seasonal drawdown or recovery, to ensure pressure recovery occurs to acceptable levels.
(4) Local extraction restrictions may increase to prevent unacceptable seasonable drawdown and unacceptable recovery levels as specified by the Minister.
…"
118 It was in the context of this clause of the Plan that Mr Lawson commented on the bandwidth approach and said:
"There is no objection in principle to 'bandwidth' management which means managing groundwater levels (rather than volumes) within predetermined limits. This is proposed under the Plan as a secondary level of management, called 'Local Impact Management', in the knowledge that higher level controls exist to ensure total extraction is within limits of sustainable yield. Groundwater allocation through water level management is an approach that could be used once individual shares in the total resource are defined. While local interference impacts can be minimised by bore spacing, individual allocations and pumping scheduling, the overall impacts must be recognised and dealt with by managing the regional volume abstracted. It is necessary to understand the external impacts of total extraction and manage that total extraction to sustainable yield, as well as manage local extraction to resolve local internal interference impacts. [Blue AB vol 2, pp 391-2]."
119 Mr Lawson also placed considerable emphasis on the role of the precautionary principle in the decision-making process leading up to the gazettal of the Plan. He said:
"… the concept of ecologically sustainable development … is fundamental to the New South Wales water reforms, and … requires effective integration of economic and environmental considerations in decision-making processes, including implementation of the precautionary principle that if there are threats of serious or irreversible environmental damage, lack of full scientific certainty should not be used as a reason for postponing measures to prevent environmental degradation. The absence of complete certainty that the outcomes predicted by modelling will actually occur should not be allowed to stand in the way of taking measures to ensure sustainability. [Blue AB vol 2, pp 383-4]."
120 Plainly an alternative approach to management of the Lower Murrumbidgee Groundwater Management Area could have been adopted. The issue for this Court, however, is whether the Plan actually adopted was irrational in a legal sense, so as to invalidate the Plan.
121 His Honour summarised the Appellant's case in a way which generally reflected the submissions in this Court:
"[143] The applicants' argument is reinforced by the fact that it is contemplated that by the process of water transfer (see s 71A), water allocations may be sold by an irrigator in one part of the Area to an irrigator in another part of the Area. Because a transfer requires consent, it will only be allowed if that part of the Area to which the allocation is proposed to be transferred has adequate water and if the extraction will not have adverse environmental consequences. However, it is likely that the transfer may be of a licence allocation which, because of the circumstances in that part of the Area in which it is held, could never be utilised (see cl 39 of the Plan). It is submitted that, if this occurs, the transferor will receive a windfall by obtaining consideration for an asset, being the entitlement which they may never have used and which in the future could not use. The transfer of entitlements provides no environmental benefit, it could never have been utilised, but the holder of the licence receives financial consideration (which may be quite substantial) from the transferee who can utilise the licence.
[144] The effect is that the transferee suffers a financial detriment which is to the benefit of the transferor. In these circumstances, although there may be windfall gains and losses, there is no net benefit for the aquifer or the environment. Because water will not be allowed to be extracted from any site in a volume which cannot be sustained (irrespective of the allocation) and because an upper limit has been imposed on the water which may be extracted in any year (appropriately averaged), all that the Plan will do is redistribute wealth to the advantage of those holding licences which they cannot presently use.
[145] It is submitted that the absurdity of the Plan is emphasised by the fact that many of those who will acquire water will have expended considerable sums in developing their properties, in some cases with the active encouragement of the government, only to now pay money for water rights without which part of their capital investment in infrastructure may be lost.
[146] In summary, the applicants submit that the consequence of the Plan is to give a windfall to some and inflict financial hardship on others. This will occur in circumstances where the total water taken from the aquifers under the Plan will remain at approximately the level taken in the previous year of greatest usage (2002/2003). Accordingly, the plan will not achieve a reduction in water taken from the total volume taken in the past but will inflict significant financial hardship on some people.
[147] The applicants' argument is not dependent on a resolution of the debate as to the precise performance of the aquifer. Whether or not the aquifer is integrated so that water taken from one location will ultimately result in a reduction of water in another location, or whether the aquifer in one part of the Area is recharged from the Murrumbidgee River, it is contemplated that by the transfer system a greater volume of water per square kilometre may be taken from some areas than from others, although the total water taken is kept below the available water determination. Consequently, the applicants submit that the Plan fails to maximise the social and economic benefits to the community and does not reflect the requirements of the Act. Indeed, it is submitted that because of the economic disadvantage to some, the effect of the Plan will be to inflict negative economic impacts with discordant social and economic outcomes.
[148] The applicants submit that the approach to water management reflected in the Plan fails to recognise that although the aquifer may be one water body, parts of it perform differently and, as is inherent in the contemplated transfer arrangements, may be managed differently. Consequently, it is submitted that it is illogical to impose uniform reductions on an Area which will not thereafter be uniformly managed but will in fact be managed by reference to the quality and performance of the aquifer in particular parts of the Area. These may be thought of as the zones by which the Area has been managed in the past and, it is submitted, by which it should be managed in the future."
122 As can be seen, particularly from [147], the Appellant's case did not require a determination of the actual degree of interconnectivity. It is sufficient, it submits, that the limited degree of interconnectivity which is accepted by all experts leads to a level of unfairness that indicates irrationality or illogicality.
123 The central significance of equity considerations was emphasised in the Appellant's submissions in this Court. I note in particular the following passage from the written submissions:
"3.9 … Did the Parliament intend the Minister to reduce entitlements arbitrarily, in the sense that no account was to be taken of the state of the water source from which a particular user extracted water? Did the Parliament intend that the Minister could, in order to promote a trading scheme insist that farmers with existing entitlement and adequate available water, have their entitlements arbitrarily reduced, so as to force them to purchase an entitlement from farmers with no use for it? In short, did Parliament intend that the Minister have power, in circumstances where no overall reduction in water usage was required, to impose a financial penalty on current licencees? The formulation of questions in this manner reveals the implausibility of the answers proposed by the Minister."
124 The Appellant's case is that the imposition of a single system across the entire aquifer is irrational because it cannot be based on any requirement determined by water availability and, accordingly, that the imposition of uniform reductions was illogical. It submitted that the Plan was not saved by the fact that persons who lost some level of their entitlements under the 1912 Act, in circumstances where there was no reason for doing so based on water availability, had the ability to buy back an entitlement at additional cost.
125 The Respondent, however, relies on the role of the transfer system under the Plan. Part 11 of the Plan outlines access licence dealing rules which apply to all access licences, other than supplementary licences. Licence holders may have entitlements in excess of their requirements, perhaps because they have never used a significant proportion of their theoretical entitlements or because their farming operations are no longer viable or because local impact restrictions under cl 36 reduce their actual ability to draw water in a particular year. Such excess entitlements may be sold to other water users whose entitlements under access licences, even with the addition of supplementary licences in the years when they are available, would give rise to a level of extraction below sustainable recharge in their area. The requirements of such users could be satisfied by the purchase of the entitlements of persons who have excess entitlements. Because the transfers require Ministerial approval, no transfer would be permitted to be made into an area with inadequate supply.
126 His Honour's conclusion appears in the following passages of his judgment:
"[179] The fundamental complaint in the present case is that the Plan operates to the disadvantage of those who have, because of the location and the attributes of their land, been able to use, or who can expect to be able to use, the greater proportion of the water allocated to them in the past without any identifiable detriment for the groundwater within the Area. Ultimately, the likely consequence of the water transfer arrangements is that water will be taken from those areas in the same total volumes as it is today.
[180] Although the evidence discloses that over a great many years the aquifer may function as a single body of water which would justify a uniform reduction in entitlements, there are obvious anomalies in basing the Plan on these principles. The reason for this is that the water which will in future be allowed to be taken for irrigation will be confined to the volume of the annual average recharge. In other words, only the water that will be replaced by natural processes in any year can be taken. In some areas, the controls will be imposed by the natural features - wells which have been made may simply be dry or the water may be unfit for use for agriculture. In other areas, the control on the volume of water taken will be imposed by the Minister so that the water taken from part of an area will not deplete the long term average storage component of the aquifer and cause damage to the environment. Of course in areas where the recharge is plentiful, high levels of extraction, which may have to be authorised by the acquisition of additional licences, are likely to continue.
[181] I am in no doubt that the Minister could have achieved the intended environmental outcome by either imposing appropriate and different controls on parts of the Area or managing the aquifer by a bandwidth approach. I accept Mr Lawson when he says that there may be some difficulty in defining the boundaries between zones, but those problems have been faced and addressed under the existing management regime and I am not persuaded that they would be insurmountable.
[182] I am also satisfied that by imposing a uniform reduction on all irrigators, irrespective of their capacity to use the water theoretically available under the licence, the Plan will operate unfairly on some irrigators in a manner which could have been avoided. However, an approach which was based entirely on historical usage would also have been unfair to those who were still developing their properties and may have rewarded inefficient irrigators more than efficient users unless detailed rules in relation to the method of irrigation were imposed.
[183] As I have indicated, the fundamental object of the Plan is to confine water taken for irrigation to the capacity of the annual recharge of the aquifers. However, recharge is not uniform across the Area. Accordingly, to impose a regime of uniform reductions has the consequence that the identified objective, of allowing the water taken to be the equivalent of the annual recharge, will not be achieved by the plan. That will only occur by the operation of the market to be created for water allocations and then with the obvious inequities which I have discussed.
[184] Notwithstanding these matters and accepting the identified anomalies I am not persuaded that bearing in mind the confined role for a court in judicial review proceedings the applicants are entitled to relief. It was for the Minister, and not the Court to balance the desired environmental outcome, and the chosen method of achieving it, with the beneficial and adverse social and economic consequences.
[185] As Mason J said in Peko (at 42) when the decision-maker is required to balance disparate matters when making a decision, a court should be cautious when asked to intervene for otherwise it may inadvertently be engaging in merit review. Perhaps, in the present case, if the Minister had not addressed the potential anomalies by providing a regime for supplementary water, a case for intervention could be made out. However, by providing for supplementary water the Minister has acknowledged the harm which may be occasioned to some irrigators and provided a regime designed to ameliorate it. It is not for the court to determine whether the regime adopted is the best which could have been provided. It is plain that the difficulties were considered and that the Minister, balancing the competing interests, is of the opinion that he has appropriately provided for the social, economic and environmental benefits from the available groundwater. The Minister's decision to provide a management regime which imposed hardship on some in the interests of achieving a satisfactory future regime for the management of the whole of the aquifers cannot be described as irrational.
[186] When deciding to make the Plan the Minister had the ultimate objective of providing for the long term sustainability of the underground water. His decision was required to be informed by, inter alia, the precautionary principle which required a regime to be put in place which was likely to sustain the water source even if, as is the case, full scientific knowledge of the structure and behaviour of the aquifer is not available.
[187] By ensuring the long-term health of the aquifer, the Minister has ensured both an appropriate environmental outcome and sustainable agriculture with the associated social and economic benefits. The mechanism adopted is faithful to the principle in s 5(3)(a) of the Act "that sharing of water from a water source must protect the water source and its dependent ecosystems" which must not be prejudiced by extraction of water (s 5(3)(c)). By providing supplementary water, the Minister has allowed for a lengthy period of adjustment during which those who can sustain an agricultural enterprise may, although at a cost, acquire water rights.
[188] Others who lose part of their present rights to water and who could not justify, for economic or environmental reasons, the acquisition of additional entitlement may receive some moneys from the sale of entitlement, which they will presumably invest in some manner. To the extent that the Plan impacts adversely on those persons, the sale of the entitlement will ameliorate their position.
[189] Having regard to all of these matters, I am not satisfied that the approach which has been taken is so lacking in logical structure or so fails to have regard to the parameters which the Act imposes on the Minister that it could be said that it was not open to the Minister and that the Minister's discretion in making the Plan has miscarried.
[190] By providing a uniform approach to reducing entitlements, the Minister has ensured that ultimate control over the performance of the aquifers can be managed by available water determinations and close supervision of the transfer applications. The fact that there may be windfall gains or losses which could have been avoided does not mean that the Plan is founded upon judgments which were not open to the Minister. Some may believe it to be preferable, if possible, to manage the water without those consequences, but that was a decision for the Minister and not for the Court."
127 A challenge to the exercise of a statutory power on the basis of irrationality or unreasonableness requires the Court to be conscious of the permissible scope of judicial review. The legality/merits dichotomy is at the heart of Australian administrative law and the boundary between the two is policed more rigorously in this country than appears to have become the case in recent years in other common law jurisdictions. The most frequently cited statement of principle is that of Brennan J in Attorney-General (NSW) v Quinn (1990) 170 CLR 1 at 35-36:
"The duty and jurisdiction of the Court to review administrative action do not go beyond the declaration and enforcing of the law which determines the limits and governs the exercise of the repository's power. If, in so doing, the Court avoids administrative injustice or error, so be it; but the Court has no jurisdiction simply to cure administrative injustice or error. The merits of administrative action, to the extent that they can be distinguished from legality, are for the repository of the relevant power and, subject to political control, for the repository alone."
128 There are circumstances in which the outcome of a decision-making process will of itself indicate legal error. However, the courts must be slow to so find, because of the blurring of the distinction between legality and merits that can often arise when determining such a ground of judicial review.
129 The submissions in the present case did not give rise to any dispute as to the appropriate legal test. Both parties accepted that judicial review on such a basis was permissible. Nothing appeared to turn on the particular formulation of the test in the case law. Perhaps the most appropriate formulation is whether the decision is "illogical, irrational or lacking a basis in findings or inferences of fact supported on logical grounds": Minister for Immigration and Multicultural Affairs Ex parte Applicant S20/2002 [2003] HCA 30; (2003) 77 ALJR 1165 at [52] and [37], [173]; see also Minister for Immigration and Multicultural and Indigenous Affairs v SGLB [2004] HCA 32; (2004) 78 ALJR 992 at [38].
130 With respect to a power to make a plan of the character under consideration in the present case, I find particularly helpful the formulation of Sir Owen Dixon in Williams v Melbourne Corporation (1933) 49 CLR 142 at 155:
"To determine whether the bylaw is an exercise of a power, it is not always enough to ascertain the subject matter of the power and consider whether the bylaw appears on its face to relate to that subject. The true nature and purpose of the power must be determined and it must often be necessary to examine the operation of the bylaw in the local circumstances to which it is intended to apply. Notwithstanding that ex facie there seemed a sufficient connection between the subject of the power and that of the bylaw, the true character of the bylaw may then appear to be such that it could not reasonably have been adopted as a means of attaining the ends of the power. In such a case the bylaw will be invalid, not because it is inexpedient or misguided, but because it is not a real exercise of the power."
131 The facts of that case involved a power to regulate traffic. Dixon J formulated the issue at 156 in terms which are able to be adapted to the present case:
"The ultimate question in the present case appears to me to be whether, when applied to the conditions of Melbourne, the bylaw involves such an actual suppression of the use of the streets for the purposes of the necessary transit of an important and ordinary commodity as to go beyond any restraint which could be reasonably adopted for the purpose of preserving the safety, convenience and proper facility of traffic in general."
132 The line of authority that bears the closest analogy with the legislative scheme presently under consideration is the Federal Court case law on management of fisheries by the relevant Minister under the Fisheries Act 1952 (Cth).
133 In Minister for Primary Industries & Energy v Austral Fisheries Pty Ltd (1993) 40 FCR 381, the Court found that the provisions of a particular plan were so unreasonable as to be invalid. Lockhart J said at 384:
"Delegated legislation may be declared to be invalid on the ground of unreasonableness if it leads to manifest arbitrariness, injustice or partiality; but the underlying rationale is that legislation of this offending kind cannot be within the scope of what Parliament intended in authorising the subordinate legislative authority to enact law."