TWO LONGTIME FRIENDS DECIDED TO BUY A PROPERTY WITHOUT AN EXISTING WATER ACCESS; DECEIVING FRIEND PROMISED HE WAS GOING TO SECURE WATER RIGHTS BUT NEVER DID; AGGRIEVED FRIEND SUES FOR $131,821.04
Schieb v Burnheim
[2020] NSWSC 1254
This is a cross-claim for damages in the principal sum of $131,821.04 for breach of contract and misleading or deceptive conduct under the Australian Consumer Law (ACL). Cross-defendant convinced cross-claimant to co-purchase a lot with no existing water access. Cross-defendant promised to secure water rights to the property, which never materialized.
Facts:
- The Great Artesian Basin lies far below the properties of the Coonamble Shire. Bores drilled hundreds of metres into the ground release water from that vast aquifer to irrigate crops and provide water for stock. One such bore is formally known as the "New Wingadee No. 4 Bore Scheme" (“Scheme” or “Bore”).
- Several properties are entitled to draw water from the Bore for free in return for contributing to its capital costs from time to time. The property owners are part of the Scheme and are covered by the Bore Agreement. Following execution of the Bore Agreement, the Scheme members sank a bore for artesian water at a cost of $130,000 shared between the 8 members.
- New members can be admitted to the Scheme by vote of the members and provided that not more than two members dissent.
- The cross-defendants, Donald “Don” Schieb and his wife Ainslie Schieb (the “Schiebs”), have together been original members of the Scheme.
- The Schiebs have known Peter Burnheim and his wife Leah Burnheim (the “Burnheims”) for 45 years, with Don Schieb having been the Burnheims' stock and station agent for about 10 years in the 1980s.
- At an auction in March 2011, the cross-claimants, the “Burnheims”, jointly purchased a property called “Mikimba” with the Schiebs. The parties agreed to subdivide Mikimba so that each couple became the registered proprietor of approximately half of the property.
- Clause 12.3 of the Deed of Partition includes the obligation “to do all things necessary and sign all appropriate documentation to enable Burnheim (sic) water rights to the Wingadee No 4 Water Scheme”.
- Shortly before the parties made their offer to purchase Mikimba, Mr Schieb said to Mr Burnheim: “Don’t worry about water, because I can get you onto the Bore Scheme, and in the meantime, you can have access to water on Nullabar” (“Nullabar” being the Schiebs’ property adjoining Mikimba).
- The members of the Scheme refused the Burnheims’ application to become a member. The Scheme members have agreed to sell (and are selling) water from the Bore to the Burnheims under licence at a price for a 10 year period, but terminable on 12 months' notice without a breach of the agreement, or a month's notice in the event of a breach, such as non-payment of unauthorized extensions to the water supply).
- The Burnheims claim damages for breach of contract or in the alternative, or misleading deceptive conduct pursuant to s 18 of the Australian Consumer Law (ACL).
Issue: Did the Schiebs breach a promise to ensure that the Burnheims would become member of the Scheme? Did Mr Schieb engage in misleading or deceptive conduct within the meaning of the ACL? Is the claim under the ACL barred by prescription? Did the Burnheims adequately prove the loss they claimed as the difference between the value of Lot 101 with and without an entitlement to draw water from the Bore as part of the Scheme?
Law:
- The principles of contractual interpretation which the Court has to apply are summarised by the High Court in Electricity Generation Corporation v Woodside Energy Ltd:
“...The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean ... [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context...”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience
- The following are the applicable provisions of the Australian Consumer Law (ACL):
4 Misleading representations with respect to future matters
(1) If:
(a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b) the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a) a party to the proceeding; or
(b) any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
...
18 Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
...
236 Actions for damages
(1) If:
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
(2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
Analysis:
- The Burnheims' claim in contract succeeds for two reasons. First, a promise to “do all things necessary... to” is a promise to achieve the specified result. It was not a "best endeavours" or "reasonable endeavours" clause. Such construction leads to an uncommercial outcome for the Burnheims with no countervailing advantage to the Schiebs. Rather, it was a bespoke clause that imposed an unconditional obligation to bring about the result of enabling water rights.
- Second, the expression “water rights” in the context of clause 12.3 means a permanent legal entitlement to use water without charge from the Bore that comes only with membership of the Scheme, as opposed to a licence to draw water at a price and for a term with no enforceable legal right of renewal.
- The Burnheims' claim under the ACL also succeeds. The Court accepts that the alleged representation was made by Mr Schieb. This is because it is inherently probable and because the Court has found Mr Schieb's recollection of events to be unreliable and prefers the evidence of Mr Burnheim. The Schiebs have failed to rebut the statutory presumption under s 4(2) of the ACL as to lack of reasonable grounds for making the representation.
- Nor is the claim statute barred under s 236 of the ACL. The Burnheims' cause of action under the ACL did not arise until damage was suffered. The alleged representation concerned a future event that was a type of contingency. The Burnheims did not suffer damage until that future event did not happen when their application to join the Scheme was refused at the meeting of the Scheme members held in September 2014.
- No party suggested that there was any difference between the relevant property values in January 2019 and as at the date of hearing. The Court is satisfied that the Joint Valuers' Summary provides a reliable basis for the Court to find (as it does) that Lot 101 is worth $110,000 less than it would be if the Burnheims were able to irrigate it as members of the Scheme.
Conclusion:
The Burnheims are entitled to damages in the sum of $131,821.04, comprising:
(1) $110,000 for the loss of value of the Burnheims’ eastern half of Mikimba due to the lack of a permanent legal entitlement to water from the Bore;
(2) $17,747.38 for the Burnheims’ payment towards water infrastructure purchased and installed (the majority of which is located on the Schiebs’ half of Mikimba) for the purpose of exploiting the water rights granted by the Scheme, but which were ultimately not provided;
(3) $7,678 for the Burnheims’ payment of water from November 2014 to date, pursuant to the licence arrangement with the Scheme; and
(4) Reduced by $3,604.34, which the Court accepts to be the anticipated membership payment the Burnheims would have been required to pay to the Scheme as an upfront contribution towards capital costs, had their membership application been successful.
