The Facts

Two brothers co-own rice farm

A husband and wife began farming in the 1950s.

Over several decades they purchased four farms and involved their children in a family farming partnership.

Two of their children, brothers G and M, co-owned one of the farms, growing irrigated rice.

Brothers co-own shares in water utility

G and M also jointly held shares in the utility that regulated the supply of irrigation water to their farm. The shares had water rights associated with them.

After the introduction of the market for water rights in 2007, a substantial value could be attributable to those shares.

G sells his interest in rice farm to M

In April 2000, the family had a conference to discuss dissolving the family farming partnership.

As part of these discussions, it was agreed that M would buy G's interest in their farm.

In June 2000, G sold his interest in the farm to M for $250,000. The family also signed a deed of dissolution of the partnership.

M paid a deposit of $25,000 and granted G a mortgage of $225,000 to secure the balance of the purchase price.

Shares and associated water rights remain in joint names

When the sale was completed, the land title to the farm was transferred into M's name, but the shares in the water utility remained in joint names.

After that point, M conducted the farm's operations without any communication with G, except in relation to the mortgage.

In September 2008, G wrote to M, offering to sell his interest in their shares in the water utility to M at their current market value.

M took issue with this, believing that he had already purchased these shares in the land sale, although the shares had yet to be formally transferred.

G commences legal action to sell shares in water utility

G commenced legal action in the Supreme Court, seeking the appointment of a trustee to sell the shares in the water utility and to divide the proceeds of sale between G and M equally in accordance with their co-ownership of those shares.

In response, M asked the court for an order requiring G to transfer his interest in the shares to M.

It was up to the court to decide whether M had purchased not only the legal title to the farm, but also the shares and associated water rights.

case a - The case for M

case b - The case for G

  • My brother, G, may technically have a legal interest in the shares, but he should be estopped (barred) by the court from insisting upon those legal rights.
  • G encouraged me to assume that the sale of the farm included the shares and associated water rights. At the family conference in April 2000, I asked G if the sale was "land and water", and G replied "yes". G also told me "I am selling everything, you go your way, I go mine." I took this to mean a complete separation of all joint property, including the shares.
  • Relying on this assumption, I treated the shares and the water allocation as my own property, paying the full costs of the water supplied to the farm each year from 2000 onwards.
  • Clearly G knew that I was operating under the assumption that I was the sole owner of the shares, since he never offered to contribute to the cost of the water.
  • I will suffer significant detriment if G is allowed to insist upon his strict legal right to the shares. I could even lose my water allocation for the farm.
  • The court should therefore declare that G holds his interest in the shares on trust for me and require him to transfer this interest to me.
  • I never encouraged my brother, M, to assume that the sale of the farm included the shares and associated water rights. When I agreed that the sale was for "land and water", I meant the water then already on the farm, not the water rights.
  • Even if the court concludes that by "land and water" I meant water rights, the contract for sale prevents G from relying on any representations not expressly provided for in the contract. The contract was silent on whether the shares and associated water rights were included in the sale.
  • In June 2000 I gave M a power of attorney that he could use in his dealings with the utility company to access my share of the farm's water allocation each year. So M clearly knew that he wasn't the sole owner of the shares and associated water rights.
  • I did nothing to foster an assumption by M that the shares and associated water rights were included in the sale, so I should not be barred from exercising my legal rights in relation to the shares that we co-own.
  • The court should appoint a trustee to sell the shares and divide the proceeds of sale equally between M and me.

So, which case won?

Cast your judgment below to find out

Anneka Frayne
Kelly Brown
Rural property and water rights
Stacks Law Firm

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