“When I bought my brother’s half of the farm, the water rights came with it, so he has to hand them over.” Which case won?
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.