In a statement of claim first lodged in February, ICM says the $135 million scheme to compensate primary producers for reducing their water use is invalid because the states are not required to offer "just terms". The writ claims compensation in the form of ex gratia payments is discretionary and not based on definable criteria of fair value for actual loss.

ICM, owners of the Cowl Cowl Station and the Hillston Citrust properties in the Lower Lachlan Valley, has been joined by farmer Alan Arnold and 107 others who held groundwater extraction entitlements in the Murrumbidgee area but lost their challenge to the scheme in the NSW Court of Appeal last year.'

Former attorney-general Bob Ellicott QC is representing ICM, but today declined to comment on the case.

Director of the Centre for Comparative Constitutional Studies and Melbourne University Associate Dean Cheryl Saunders said the case would once again raise important questions about the contradictory "just terms" obligations placed on the Commonwealth versus the States in the constitution.

"This is a question that's been raised in the past by similar cases and I'm sure it will be raised again, in fact - how come we've got constitutional arrangements that impose a requirement for 'just terms' only on one sphere of government? That, in itself, is weird," she said.

While the Commonwealth is under a constitutional obligation to offer "just terms" in order to acquire property under section 51(31), the states are under no such obligation.

Pursuant to s 5 of the Natural Resources Management (Financial Assistance) Act 1992, the Commonwealth entered a funding agreement with NSW whereby the Commonwealth provided financial assistance for NSW water management projects

Saunders said the case would hinge on the High Court's characterisation of the funding agreement - whether, when the states acquire property in an intergovernmental agreement with the Commonwealth, the "just terms" requirement is activated.

Characterising the Natural Resources Management Act as an act for the acquisition of property will pose a challenge in itself, according to Saunders.

"There are a number of complications about saying that it is an act for the acquisition of property - one is that the states aren't obliged to accept the money under the relevant sections of the constitution. The grants provision of section 96 authorises the Commonwealth to offer money to the states on conditions, but they [the states] are not obliged to accept, which complicates the characterisation of the act.

"There's also another stream of old - very old - judicial decisions dating from shortly after the Second World War dealing with soldier settlement schemes."

Saunders said the outcome of the case was unpredictable, especially given that many of the relevant cases are old law.

"It's very difficult to know what the High Court is going to do with this ...but the cases are old. Since those cases were decided, the High Court has become rather more interested in the substance of legislative schemes," she said.

"I suspect that the court will not be sympathetic to an argument that looks as if this is just a deal to circumvent the constitution - on the other hand, I don't think it is necessarily just such a deal."

Joining the Commonwealth in court on Monday 24 August are NSW, Victoria, Queensland, South Australia and Western Australia.

- Laura MacIntyre