Two brothers co-owned a farm and the younger brother sold his interest in the farm to his older brother. A dispute arose many years later as to whether the sale included the water rights. The older brother argued that the water rights were transferred with title to the farm. The younger brother sought relief under section 66G of the Conveyancing Act 1919 to appoint trustees for the sale of the water rights (held through shares) and claimed half the proceeds. The older brother admitted the water rights were legally co-owned but said that the shares should be conveyed to him on the following grounds:
- the seller is estopped from claiming an interest in the shares because he permitted or encouraged the buyer to act as if he held the water rights exclusively;
- it was an implied term of the contract;
- title to the shares passed under the terms of the contract.
The court found that the oral evidence of the brothers and family members from the period leading up to the family conference until the deed was signed and the deed itself confirmed that a complete separation of interests was what all participants had in mind.
Four elements must be established:
- one party creates or encourages another party to adopt a particular assumption or expectation that a particular legal relationship exists between them;
- the latter party relies upon that assumption or expectation;
- the latter party’s reliance is known or expected; and
- the latter party would suffer detriment if the assumption or expectation was not fulfilled.
The court found that:
- the seller encouraged the buyer to believe that the sale of the farm included the water rights by saying repeatedly “I am selling everything….houses, shares, water, everything”;
- the buyer treated the shares and water as his own by paying for the full costs of the water supplied without accounting to the seller for its use and arranging for the water account to be issued in his name only, honestly believing he owned the water rights exclusively;
- the seller knew the buyer assumed he had exclusive water rights and assumed the same because there was no consultation between them for the 8 years about use of the water in terms of its costs or profits (in this regard the court did not believe the seller that he expected the buyer to ring and ask for permission and if he didn’t, he was buying water rights elsewhere);
- the buyer would suffer detriment if he lost his water allocation for the farm, was forced to buy them back on the open market with no guarantee that rights could be secured and without such rights, would be forced to cease farming. He would also be liable to account for use of the rights for the past 10 years without having had the opportunity to provide for it annually, on top of having to buy water rights back at a time when their value had risen.
The court found that the “no warranty” clause in the contract of sale could not be relied upon to defeat a representation as to the water rights being transferred because the contract only dealt with the land not the shares.
The court found the buyer succeeded in his estoppel claim.
The buyer argued that it was an implied term of the contract that the seller would “do all things necessary to convey the shares in relation to the water allocations”.
For a term to be implied, the following conditions must be satisfied:
- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
- it must be so obvious that “it goes without saying”;
- it must be capable of clear expression;
- it must not contradict any express term of the contract.
The court did not find the conditions fulfilled and held no implied term. A farm can be transferred with water rights and is legally effective without such implied term.
The court found for the buyer and declared that the seller held the water rights in trust for the buyer and ordered that they be transferred.