FEDERAL COURT OF AUSTRALIA

Clarence City Council v Commonwealth of Australia [2020] FCAFC 134

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is allowed.

2.    The second respondent’s notice of contention is dismissed.

3.    The orders made by the primary judge on 24 September 2019 be set aside.

4.    The proceeding be remitted to the primary judge for final determination.

5.    By 4.00 pm on 14 days after the date of this judgment, the parties are to file orders by agreement in respect of the costs of the application and cross-claim previously heard by the primary judge, and the costs of the appeal and the notice of contention heard by the Full Court, or, if no agreement is reached, written submissions (of no more than five pages) as to the appropriate orders in respect of these matters. The issue of costs will then be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is allowed.

2.    The second respondent’s notice of contention is dismissed.

3.    The orders made by the primary judge on 24 September 2019 be set aside.

4.    The proceeding be remitted to the primary judge for final determination.

5.    By 4.00 pm on 14 days after the date of this judgment, the parties are to file orders by agreement in respect of the costs of the application and cross-claim previously heard by the primary judge, and the costs of the appeal and the notice of contention heard by the Full Court, or, if no agreement is reached, written submissions (of no more than five pages) as to the appropriate orders in respect of these matters. The issue of costs will then be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

TABLE OF CONTENTS

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    The appellants in these two proceedings (Councils) are councils for municipal areas in the State of Tasmania. In these proceedings, the Councils seek to obtain declaratory relief in respect of the interpretation and application of contracts to which the Councils are not parties. The question for determination is whether they are entitled to do so. This raises interrelated issues concerning this Court’s jurisdiction and power to award declaratory relief, a party’s standing to obtain such relief, and the common law doctrine of privity of contract.

2    The appellant in the first proceeding, Clarence City Council, administers a municipal area covering the eastern suburbs of Hobart and surrounding localities. The appellant in the second proceeding, Northern Midlands Council, administers a municipal area that extends from the south of Launceston to the Tasmanian central midlands. Relevantly for the present case, the territories administered by the Councils include the Hobart International Airport and Launceston Airport (Airports) respectively.

3    Due to constitutional limitations, the Councils do not have power to levy rates or charges in respect of the sites covered by the Airports, which are owned by the Commonwealth. At the time of the privatisation of Australia’s federal airports in the 1990s, this was perceived to create a competitive imbalance between the operators of the Airports (amongst other newly privatised airports) and their actual or potential competitors. To implement a policy of “competitive neutrality”, the Commonwealth resorted to a contractual solution, which is now the subject of the present litigation.

4    The Councils seek declarations in respect of two separate leases (leases) between the first respondent in each proceeding, the Commonwealth, and the second respondents in each proceeding, the respective lessees of the Airports—Hobart International Airport Pty Ltd and Australian Pacific Airports (Launceston) Pty Ltd (collectively, Lessees). The leases include a mechanism to the effect that, where council rates and taxes are not payable by the Lessees because the Airport site is owned by the Commonwealth, the Lessees must pay to the relevant Council an amount, as notified by the Council, calculated according to certain parameters described in the leases. The Councils, however, are not parties to the leases.

5    As a result of events detailed in these reasons, the Councils (which are opposed in this respect by the Commonwealth and the Lessees) contend that the Lessees have failed to pay the Councils the amounts which the Lessees are obliged to pay under the leases. The dispute results from differing interpretations of the leases relating to the manner in which the payments are to be calculated. The difficulty for the Councils is that, despite being ostensible participants in (and purportedly intended recipients of benefits under) the leases, they are not parties to the leases and are accordingly not entitled to enforce the leases’ terms. In these circumstances, the Councils instead seek declaratory relief in this Court in respect of the interpretation and application of the leases.

6    However, the primary judge held that the Councils had no standing to seek such relief. According to his Honour, to grant the Councils standing in the present case would be to jettison the fundamental and binding common law doctrine of privity of contract. The primary judge consequently dismissed the Councils’ proceedings.

7    With great respect to the primary judge, the claim in this proceeding by a third party to a contract for declaratory relief in respect of the interpretation of that contract does not raise the privity doctrine. Instead, the question of standing is to be determined by reference to, in particular, the constitutional and statutory requirement for a “matter”, and the test for standing applicable to claims for declaratory relief. In the present case, these matters centre on, first, the existence and quality of the controversy regarding the Councils’ claim to declaratory relief and, second, the quality or character of the Councils’ interest in that relief.

8    For these reasons expressed below, the Councils have standing to seek the declaratory relief in respect of the interpretation and application of the leases. Although the parties to the leases—the Commonwealth and the Lessees—are not in dispute, this is not, by itself, an impediment to the crystallisation of a justiciable controversy. Moreover, in the present case, the Councils, which are participants and beneficiaries under the terms of the leases, have a sufficient interest in the declaratory relief sought, which, if granted, would be of real commercial and practical importance to the Councils.

9    On this basis, we allow the Councils’ appeals and dismiss the Lessees’ notices of contention. Although the Councils have standing, it remains to be determined whether the Councils are entitled to the declaratory relief sought in the circumstances of the present case. The proceedings will be remitted to the primary judge to determine that question.

BACKGROUND

Regulatory context

10    In the 1990s, the Commonwealth privatised Australia’s federal airports and entered into long-term leases with private airport operators (including the Lessees in respect of the Airports). A central event in this process was the enactment of the Airports Act 1996 (Cth) (Airports Act) and the Airports (Transitional) Act 1996 (Cth) (Transitional Act). The role of the Airports Act was “to establish the regulatory arrangements to apply to the airports currently owned and operated on behalf of the Commonwealth by the Federal Airports Corporation (FAC), and Sydney West Airport, following the leasing of those airports”: Explanatory Memorandum, Airports Bill 1996 (Cth), p 1. The role of the Transitional Act was to put in place “a framework which gives effect to the Government’s decision to lease all the Federal airports effectively as ongoing businesses with staff and management in place” under a two stage process, with leases over the major Federal airports at Sydney and Sydney West, Melbourne, Brisbane and Perth to be sold in a first phase and the remainder of the Federal airports to be sold in a second phase: Explanatory Memorandum, Airports (Transitional) Bill 1996 (Cth), p 9. See generally Australian National Audit Office, Management of Federal Airport Leases, Audit Report No. 50 2003–04 (Australian National Audit Office, Canberra, 2004) pp 9 and 27-28; Australian National Audit Office, Management of Federal Airport Leases: Follow Up, Audit Report No. 25 2006–07 (Australian National Audit Office, Canberra, 2007) pp 11 and 21-23 and Bartsch RIC, Aviation Law in Australia (5th ed, Thomson Reuters, 2019) pp 596-598.

11    The privatisation of Australian airports, and the operation of the Airports Act and Transitional Act, have been judicially considered in various contexts: Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406 (Aussie Airlines) at 407-408 per Lockhart J (with Spender and Cooper JJ agreeing); Brisbane Airport Corp Ltd v Wright [2002] FCA 359; 120 FCR 157 at [3]-[13] per Dowsett J; Ryan v Westgroup Pty Ltd (Receivers And Managers Appointed) [2004] WASC 1 at [11]-[14] per Pullin J; Village Building Co Ltd v Canberra International Airport Pty Ltd (No 2) [2004] FCA 133; 134 FCR 422 at [13] per Finn J; Westfield Management Ltd v Brisbane Airport Corporation Ltd [2005] FCA 32 at [18]-[38] per Cooper J; Direct Factory Outlets Pty Ltd v Westfield Management Ltd [2005] FCA 34; 144 FCR 23 at [18]-[38] per Cooper J; Police and Nurses Credit Society Ltd v National Australia Bank Ltd [2005] WASCA 68 at [32]-[37] per McKechnie J and [62]-[64] per Simmonds J; Virgin Blue Airlines Pty Limited [2005] ACOMPT 5; 195 FLR 242; (2006) ATPR 42-092 at [18]-[24] per Goldberg J, Mr G F Latta and Dr J S Marsden; Sydney Airport Corporation Ltd v Australian Competition Tribunal [2006] FCAFC 146; 155 FCR 124 at [41] per French, Finn and Allsop J and Commonwealth of Australia v Essendon Airport Pty Ltd [2019] FCA 1411 (Essendon Airport) at [5]-[15] per Steward J.

12    At the time of privatisation, the Commonwealth was concerned to create a “level playing field” between the operators of these newly privatised airports and their actual or potential competitors. A source of the perceived competitive imbalance was the fact that Commonwealth land (which the new operators leased) was not amenable to council rates or State land taxes, while their actual or potential competitors were liable to pay such rates and taxes. This results from s 114 of the Constitution, which, for reference, provides as follows:

A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

13    The Commonwealth’s concern particularly stemmed from the principle of “competitive neutrality” to which the Commonwealth and the States and Territories had agreed in a “Competition Principles Agreement” dated 11 April 1995. An overarching purpose of that agreement, as described in its preamble, was “to achieve and maintain consistent and complementary competition laws and policies which [would] apply to all businesses in Australia regardless of ownership”. For general background, see Rail Access Corporation v New South Wales Minerals Council Ltd (1998) 87 FCR 517 at 518 per Black CJ, Wilcox and Goldberg JJ; Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2012] HCA 36; 246 CLR 379 at [71] per French, Gummow, Hayne, Crennan, Kiefel and Bell JJ; Essendon Airport at [16] and Miller RV, Miller’s Australian Competition Law and Policy (3rd ed, Thomson Reuters, 2018) pp 55-58, 409, 463-466 and 501-512.

Leasing of federal airports

14    The Transitional Act provided for the leasing of federal airport sites to both Commonwealth-owned companies and privately owned companies. In the case of leases to Commonwealth-owned companies, provision was also made for the sale of shares in those companies to new owners. At the time of entry into the leases, s 3 of the Transitional Act described the regulatory context as follows:

Simplified outline

The following is a simplified outline of this Act:

•    This Act provides for the leasing of certain airports.

•    Airport land and other airport assets will be transferred from the Federal Airports Corporation (FAC) to the Commonwealth.

•    The Commonwealth will grant an airport lease to a company. The company is called an airport-lessee company.

•    Immediately after the grant of the airport lease, the Commonwealth may transfer or lease certain assets to the airport-lessee company.

•    Certain employees, assets, contracts and liabilities of the FAC will be transferred to the airport-lessee company.

15    Then, in Pt 3 of the Transitional Act (entitled “Original grants of airport leases to companies”), s 21 relevantly provides as follows:

Commonwealth may grant airport lease to a Commonwealth-owned company

(1)     The Commonwealth may grant an airport lease under this section.

(2)     The Commonwealth must not grant an airport lease under this section unless the lessee is a company all of whose shares are beneficially owned by the Commonwealth.

(3)     If a purported lease contravenes subsection (2), it is of no effect …

16    Section 22 of the Transitional Act similarly provides as follows:

Commonwealth may grant airport lease to a company that is not owned by the Commonwealth

(1)     The Commonwealth may grant an airport lease under this section.

(2)     The Commonwealth must not grant an airport lease under this section unless the lessee is a company none of whose shares are beneficially owned by the Commonwealth.

(3)     If a purported lease contravenes subsection (2), it is of no effect.

17    The term “airport lease” adopted in ss 21 and 22 is defined by reference to its meaning in the Airports Act: s 4 of the Transitional Act. At the time of entry into the leases, s 5(1) of the Airports Act relevantly provided as follows:

airport lease means a lease of the whole or a part of an airport site, where:

(a)     the Commonwealth is the lessor; and

(b)     if the airport is not a joint-user airport—the leased area includes the airport runways; and

(c)     if the airport is a joint-user airport—the leased area consists of the area ascertained in accordance with the regulations.

Entry into the leases

18    To facilitate the privatisation of the Airports, the Commonwealth granted the leases to the Lessees in respect of each Airport pursuant to s 22 of the Transitional Act (extracted above at [16]). The lease for the Hobart International Airport is dated 10 June 1998, commencing on 11 June 1998, and is for a term of 50 years, with a 49 year option to renew. The lease for the Launceston Airport is dated 28 May 1998, commencing on 29 May 1998 and is for the same term as the Hobart Airport lease. Each of the leases are in materially similar terms. The following provisions of the leases are key.

19    The opening clause of each lease explains the context and operation of the agreement as follows:

1.1    LEASE AND CONCURRENT LEASE

In consideration of the payment by the Lessee to the Lessor of a premium which is not refundable in any circumstances, the Lessor grants to the Lessee pursuant to the Airports (Transitional) Act 1996 a Lease of the Airport Site (including the Structures) for the Term. This Lease operates as a concurrent lease over all that part of the Airport Site which is the subject of leases existing as at the Grant Time.

20    For the purposes of the present case, the key provision of the leases is clause 26 (titled “Rates and Land Tax and Taxes”), which provides (in full) as follows:

26.1    PAYMENT OF RATES AND LAND TAX AND TAXES

The Lessee must pay, on or before the due date, all Rates, Land Tax and Taxes without contribution from the Lessor.

26.2    EX GRATIA PAYMENT IN LIEU OF RATES AND LAND TAX

(a)    Where Rates are not payable under sub-clause 26.1 because the Airport Site is owned by the Commonwealth, the Lessee must promptly pay to the relevant Governmental Authority such amount as may be notified to the Lessee by such Governmental Authority as being equivalent to the amount which would be payable for rates as if such rates were leviable or payable in respect of those parts of the Airport Site:

(i)    which are sub-Leased to tenants; or

(ii)    on which trading or financial operations are undertaken including but not limited to retail outlets and concessions, car parks and valet car parks, golf courses and turf farms, but excluding runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges, and land identified in the airport Master Plan for these purposes,

unless these areas are occupied by the Commonwealth or an authority constituted under Commonwealth law which is excluded from paying rates by Commonwealth policy or law. The Lessee must use all reasonable endeavours to enter into an agreement with the relevant Governmental Authority, body or person to make such payments.

(b)     Where Land Tax is not payable under sub-clause 26.1 because the Airport Site is owned by the Commonwealth, payments in lieu of Land Tax must be made by the Lessee in respect of those parts of the Airport Site:

(i)     which are sub-leased to tenants; or

(ii)     on which trading or financial operations are undertaken including, but not limited to, retail outlets and concessions, car parks and valet car parks, golf courses and turf farms, but excluding runways, taxiways, aprons, roads, vacant land, buffer zones and grass verges, and land identified in the airport Master Plan for these purposes,

unless these areas are occupied by the Commonwealth or an authority constituted under Commonwealth law which is excluded from making payments by Commonwealth policy or law. Unless otherwise directed by the Lessor, the Lessee will make payments promptly in lieu of land tax at the relevant State rate to the Commonwealth addressed as provided for in subclause 24.1.

These payments in lieu of Land Tax will be levied on a financial year basis. The Lessee must submit an assessment of the payment in lieu of land tax to the Commonwealth on 31 August of the current financial year with this payment due 30 days later. Land value assessment for the purposes of making payments .in lieu of land tax are required at least every three years.

(c)     Where Taxes such as stamp duty, payroll tax, financial institutions duty and debits tax imposed by a Governmental Authority are not payable by the Lessee because they are Taxes on transactions, instruments or activities on or related to the Airport Site owned by the Commonwealth, the Lessee must pay to the relevant Governmental Authority such amount as is equivalent to the amount which would be payable for such Taxes if such Taxes were leviable or payable.

21    For the purposes of cll 26.1 and 26.2(a), the word “Rates” is defined to mean “all rates (including water rates and sewerage rates), and levies to defray expenses levied or imposed by a Governmental Authority on land or on owners or occupiers of land in relation to their ownership or occupation of that land”. For this purpose, and for the purposes of cll 26.2(a) and (c), the Councils, as established under the Local Government Act 1993 (Tas), are the relevant “Governmental Authority” in respect of each Airport.

22    The leases also relevantly contain an “entire agreement” clause as follows:

28.    ENTIRE AGREEMENT

The terms of this Lease constitute the entire agreement between the parties for the subject matter referred to in this Lease and all prior arrangements, agreements, representations and undertakings will have no effect. No modification or alteration of any clause of this Lease will be valid except in writing signed by each party.

Valuation disputes

23    The final sentence of cl 26.2(a) of the leases requires the Lessees to use all reasonable endeavours to enter into an agreement with the Councils to make the payments to the Councils contemplated by cl 26.2(a). There is only one instance of such an agreement, namely an agreement dated 14 May 2004 between Clarence City Council and Hobart International Airport Pty Ltd (Hobart Lessee), which specified the basis upon which the “Lease Compliance Payments” (as defined in that agreement) would be payable by the Hobart Lessee to Clarence City Council. This included prescribing the areas of the Hobart International Airport that were subject to such payments. The term of the agreement, however, was only five years. The agreement was not renewed, and there is no suggestion that the agreement was subsequently applied by way of a holding over mechanism.

24    With that exception, the Lessees and the Councils have not entered into any agreement of the type contemplated by the final sentence of cl 26.2(a) of the leases. Notwithstanding the absence of such agreements, the Lessees have made payments to the Councils in accordance with independent valuations of the Airports in each financial year since the commencement of the leases. This conduct continued without trouble until the 2014 financial year.

25    In the 2014 financial year, the Valuer-General for Tasmania (Valuer-General) undertook a revaluation of each Airport site. The outcome, in broad terms, was a significant increase in the quantum of the equivalent amount payable by the Lessees to the Councils under the leases. The Lessees objected to the Valuer-General’s valuation, and protracted correspondence and meetings between the Lessees, Councils and the Commonwealth ensued.

26    The valuation dispute broadly related to two issues. The first is the identification of the portions of each Airport site that are to be included for the purposes of the calculation under cl 26.2(a) of the leases. For instance, the Lessees contended that the calculation should not extend to the common user areas of each Airport, such as the check-in areas and the departure lounges. The second issue is whether the methodology applied by the Valuer-General resulted in correct assessments. The Lessees said that the Valuer-General applied the wrong methodology to determine the capital value and the assessed annual value of the areas to which the equivalent amount calculation was to be applied.

27    In an endeavour to resolve the disputes, the Commonwealth engaged an independent valuer, Herron Todd White (HTW). On 19 March 2016, the Commonwealth informed Australian Pacific Airports (Launceston) Pty Ltd (Launceston Lessee) by letter that HTW had provided a valuation report that “accord[ed] with the terms of the lease”; that “the ex-gratia rates determination accurately reflects the obligation imposed on [the Launceston Lessee] for payments in lieu of rates”; and that “… as the Department understands [the Launceston Lessee] has made payment to [Northern Midlands Council] exceeding the amounts determined in the report, it considers [the Launceston Lessee] to have met its lease obligation for the years addressed by the valuation” (that is, the 2014, 2015 and 2016 financial years). The Commonwealth wrote to the same effect to the Hobart Lessee on 3 June 2016.

28    On 24 August 2016, the Commonwealth further informed the Launceston Lessee by email that it would be “asking the independent valuer to revisit the valuations” but “would not expect the most recent ex-gratia payments to be revisited”.

29    After HTW provided a revised valuation report dated 4 April 2017, the Commonwealth, on 5 May 2017, informed the Lessees by separate letters that “[g]oing forward”, absent any formal agreement between the respective Councils and Lessees, it would consider the Lessees compliant with the obligation in cl 26.2(a) “should it make payments in lieu of rates to [the Councils] on the basis of a valuation and methodology consistent with” the revised HTW valuation. Relevantly, HTW did not apply a value to the common user areas in its revised valuation.

30    The Lessees subsequently paid the respective Councils for the purposes of cl 26.2(a) of the leases on the basis of the valuations and methodology set out in HTW’s revised valuation report for the 2017 and 2018 financial years.

31    As a result of these events, the parties to the leases—the Commonwealth and the Lessees—are not in dispute about the operation of cl 26.2(a) of the leases or the Lessees’ compliance with that sub-clause. Instead, the Commonwealth’s position is that the Lessees have paid the appropriately calculated amount of equivalent rates for the relevant financial years and, provided that the Lessees pay rates in the future on the basis of a valuation and methodology consistent with HTW’s revised valuation, then the Lessees will be acting in accordance with the terms of cl 26.2(a) of the leases.

32    The engagement of HTW, however, did not resolve the disputes from the Councils’ perspective. This was because the Lessees made payments to the Councils in amounts calculated in accordance with HTW’s valuations, and not the (higher) amounts (based on the Valuer-General’s valuation) that were notified by the Councils in rates notices sent each year. The Councils do not accept that these payments by the Lessees satisfied the Lessees’ obligations under cl 26.2 of the leases.

Councils’ application for declaratory relief

33    The Councils commenced proceedings in this Court in July 2018. In the proceedings before the primary judge, the Councils sought declaratory relief with respect to the proper construction of cl 26.2(a) of the leases, and the Councils’ entitlement to receive payments under that sub-clause.

34    The declarations sought by the Councils in respect of each lease were in materially identical terms. The declarations sought by Clarence City Council in relation to the Hobart International Airport site, pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), were as follows:

(a)    Upon a proper construction of clause 26.2 of a Lease Agreement entered into between the first respondent as Lessor, and the second respondent as Lessee, dated 10 June 1998 and granted in respect of the land known as the Hobart Airport (the Lease) the areas that must be included in the calculation of the ex-gratia rates equivalent payment includes each of the areas specified in attachment ‘A’ to the amended statement of claim;

(b)    A declaration that the second respondent is obliged to make payments to the applicant pursuant to clause 26.2 of the lease:

(a)    calculated in accordance with valuations made by the Valuer-General pursuant to the Valuation of Land Act 2001 and as set out in the valuation list; and

(b)    as notified by the applicant in each rates notice issued by it to the second respondent.

(c)    A declaration that the second respondent has not correctly calculated the amount of each of the ex-gratia payments that it has made to the applicant in each of the financial years 2014/2015 – 2017/2018 inclusive pursuant to the Lease; and

(d)    Alternatively, a declaration as to how the ex-gratia payment in lieu of rates is to be calculated in accordance with clause 26.2 of the Lease.

35    The relevant aspects of Clarence City Council’s amended statement of claim (which is in relevantly identical terms to Northern Midlands Council’s amended statement of claim) were extracted at [16] of the primary judge’s reasons. The Councils concede that they are not privy to the leases, and thereby do not have an entitlement to sue on the leases. They further accept that, in seeking declaratory relief in respect of the leases, they are not asserting any statutory entitlement (with one exception briefly discussed from [184] below), nor do they claim that the benefit of a contractual promise was held on trust for them. The Councils nonetheless claim to be entitled to declaratory relief on the basis that they are directly and financially concerned in the correct interpretation of the leases, and the application of the leases in respect of the Airports.

36    The Lessees filed amended defences, which, relevantly for present purposes, pleaded that the Councils did not have standing to seek and obtain declaratory or consequential relief; that the Councils’ claims did not involve a justiciable controversy such as to constitute a “matter”; and that, having regard to the foregoing, the Court should otherwise refuse to grant declaratory relief in the exercise of its discretion. The Commonwealth filed amended defences which, by way of summary, denied that each of the Councils is entitled to the relief sought, pleaded that the form of certain declarations sought by the Councils were “impermissibly imprecise”, and pleaded that the jurisdiction or power of the court under which the Councils sought particular consequential relief was not identified. The Lessees further filed cross-claims seeking declaratory relief in connection with their allegation that, on the basis that they had reached agreements with the Commonwealth regarding the quantum of payments to be made under cl 26.2(a) of the leases, any cause of action the Commonwealth may have had against the Lessees under that sub-clause had been discharged by accord and satisfaction or, alternatively, that the Commonwealth was estopped from resiling from those agreements.

37    The trial of both proceedings before the primary judge involved extensive evidence and lengthy cross-examination about proper land valuation methodologies. There was also detailed oral and written submissions concerning, among other matters, the proper construction of the leases (in particular cl 26.2(a)); the admissibility of evidence; parliamentary privilege; and whether a fire service rate “levied” by the Councils is a fee for service or a tax.

Primary judge’s decision

38    On 24 September 2019, the primary judge dismissed the Councils’ proceedings: Clarence City Council v Commonwealth of Australia [2019] FCA 1568 (Primary Judgment). Although the primary judge received substantial evidence at trial regarding the proper construction and application of the leases, his Honour dismissed the Councils’ applications solely on the basis that the Councils lacked standing to seek the declaratory relief in their applications: ibid at [14] and [63].

39    The primary judge observed that the Councils accepted that the Commonwealth and the Lessees were not in dispute about the operation of cl 26.2(a) of the leases, nor the Lessees’ compliance with that sub-clause: Primary Judgment at [23]-[24]. Then, after outlining the parties’ submissions on standing, the primary judge set out (at [42]-[62]) his reasons for dismissing the Councils’ claim to standing. As aspects of his Honour’s reasoning are considered below, it is convenient to extract the primary judge’s consideration in full:

Consideration of standing issue

[42]    As Deane J said in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 [(Trident)], at 141: “At the time of the establishment of this Court, the common law of England and of this country was long settled in its insistence upon the principle of privity of contract, that is to say, the general rule that only the parties to a contract are bound by, and entitled to enforce, its terms”. Over the course of the 20th century, the cases “have served only to reinforce the principle of privity of contract as a fundamental rule of the common law” (at 141, per Deane J).

[43]    It follows that “a third party is neither bound by nor entitled to enforce the terms of a contract between others” (Trident at 142, per Deane J). As Deane J in Trident makes clear, that is a fundamental and binding common law rule.

[44]    Deane J (at 143) cited with approval the following passage from the first edition of Professor Anson’s work, to which I have taken the liberty of adding the party equivalents in these proceedings:

A contract is an agreement between two or more persons, by which an obligation is created, and those persons are bound together thereby. If the obligation takes the form of a promise by A [the lessees] to X [the Commonwealth] to confer a benefit upon M [the Councils], the legal relations of M [the Councils] are nevertheless unaffected by that obligation. [They were] not a party to the agreement. [They were] not bound by the vinculum juris which it created, and the breach of that legal bond cannot affect the rights of a party who was never included in it.

[45]    Deane J continued (at 143):

This explanation of the general rule remains valid to the present day. Indeed, it corresponds with that advanced by Barwick CJ in [Coulls v Bagot’s Executor & Trustee Co, Ltd (1967) 119 CLR 460, at 478] when his Honour commented that he would “find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another”. As those explanations make clear, the rule of privity is not properly to be seen as a rule of exclusion of rights of action which would otherwise exist. It is a statement or reflection of an aspect of the nature of a contract, namely, that a contract between two or more parties does not, of itself, directly confer rights or impose liabilities upon persons who are not parties to it. If a third party is to be entitled to rights and subject to obligations in relation to a contract to which he is a stranger, those rights and obligations must have some basis, either in statutory provision or in common law principle, beyond the mere contract. They cannot be based merely on the contract since the contract, of itself, directly operates only between the parties to it …

(Emphasis added).

[46]    During the course of his reply in closing, senior counsel for the applicants, Mr S B McElwaine SC, submitted that the councils’ case “turns on the proposition that subjectively the parties to the agreement are mistaken as to the correct legal interpretation and then the effect of the clause or the bite of the clause upon the designated portions of the airport site. And the strongest argument that can be put in favour of the councils on that point is that the subjective intention of the parties, what they presently believe, what they believed at the time, is irrelevant. That is the consequence of the application of the objective theory of contract interpretation”.

[47]    He continued: “The objective theory sometimes produces a result that neither party intended, but that’s the consequence of it. So all we seek to do is to have this court determine the legal meaning of the contract and it matters not that the parties to it are ad idem in their understanding if that understanding is wrong”.

[48]    Later on, Mr McElwaine put the proposition that it is not necessary to establish that some legal right of the councils is infringed, and that it is sufficient if they are “to receive a benefit under a contract to which one is not a party by reason of the imposition of an obligation by one contracting party upon the other”.

[49]    At that point, I asked him: “But doesn’t [that] run headlong into what Deane J said in Trident, that the right can’t be derived from the contract itself, otherwise why do we have a privity rule?” Our exchange continued:

MR McELWAINE SC : No. And I didn’t mean to submit that … It’s not founded in this case upon some right that arises under the contract to interfere with the contract.

O’CALLAGHAN J: So what is it founded on?

MR McELWAINE SC: It’s the benefits that are received from a proper interpretation and application of a contract. So it goes back to the objective contract theory point…

[50]    With the greatest respect to counsel, it seems to me that our exchange puts into sharp relief the fact that the councils’ case does run headlong into the fundamental proposition enunciated by Deane J in Trident that if a third party is to be entitled to rights in relation to a contract to which it is a stranger, those rights must have some basis beyond the mere contract, and that if they have no such basis, the law will not recognise them.

[51]    As is apparent from the oral submissions to which I have referred, the councils’ case is founded squarely upon an insistence that the parties to the contract have got the question of what their agreement means wrong. As Mr McElwaine put it, the councils’ case is premised upon the contention that “the parties to the agreement are mistaken as to the correct legal interpretation and … the effect of the clause”. See [46] above. That submission, it seems to me, makes it plain that the councils’ asserted “right” is based “merely on the contract”.

[52]    So much is also made clear in the councils’ replies dated 9 November 2018 (see [20] above), in which they plead that they have standing because the circumstances are such that they have a real interest in the subject matter of the declarations that they seek, being the economic advantage that will accrue to them, depending upon the meaning of the provisions of the lease that are in issue in these proceedings.

[53]    As Deane J made clear in Trident, in language that admits of no ambiguity or relevant qualification (see [45] above), that will not do, because a stranger’s right to declaratory or other relief in respect of rights under a contract, if it is to have such a right, cannot be based merely on that contract. That is because “it is of the very nature of a contract that it does not, of itself, confer any direct right of enforcement upon a person who is not a party to it”. See Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, at 142, per Deane J.

[54]    In CGU Insurance Ltd v Blakeley (2016) 259 CLR 339 at 370-371, [92]-[96], Nettle J said that CGU’s submission that the lack of contractual privity between it and the liquidators deprived CGU and the liquidators of the character of adversaries (with the result that there was no justiciable controversy between them) required consideration separately from the question of Federal jurisdiction [omitting [92]-[96] of Nettle J in CGU].

[55]    The councils contended that they are not relevantly an “outsider” in the sense that Nettle J uses the term; that whether one is, or is not, an outsider “turns on a fact-specific inquiry”; and that their case should be regarded as falling within one of the “exceptions” that his Honour alluded to because of the real and substantial financial interest that the councils have in the outcome of the case.

[56]    I do not agree, because, for the reasons given by Deane J in Trident that I have dealt with above, to do so, in a case such as this, would involve jettisoning the doctrine of privity.

[57]    CGU Insurance Ltd, upon which the councils placed considerable reliance, is a case of a quite different type, because there the plaintiff liquidator relied on statutory rights (namely those arising under s 562 of the Corporations Act and s 117 of the Bankruptcy Act). As the lessees submitted, CGU Insurance Ltd does not support any abandonment of the principle of privity of contract, nor does it support an entitlement to declaratory relief in every case in which a third party may have an expectation of an economic benefit under a contract between other entities.

[58]    In his closing oral submissions, Mr McElwaine also emphasised the decision of Lockhart J (Spender and Cooper JJ agreeing) in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406. In that case the parties to the relevant head lease, the Federal Airports Corporation (the FAC), as the head lessor, and Qantas, as the head lessee, were in heated dispute about whether Aussie Airlines was “a new entrant to the domestic aviation industry”. Qantas said they were not and the FAC said they were. It followed that Qantas was “plainly a contradictor”. See Aussie Airlines at 415. As Neill LJ (Nourse LJ agreeing) said in Meadows Indemnity Co Ltd v The Insurance Corporation of Ireland plc [1989] 2 Lloyd’s Law Reports 298 at 304-305, cases where a plaintiff seeks a declaration as to its legal rights which are being contested by a defendant “despite the absence of any direct contractual link”, and where the declaration is sought to resolve an issue between the plaintiff and the defendant, fall into a different category. Even in cases that do fall into such a category, whether a stranger, not seeking to invoke a statute, or claiming the benefit of a trust, or a relevant expectation of a benefit, or any other so called “exception” to the privity rule, will be entitled to declaratory relief will depend upon all the circumstances of the case. (As to there being no “true exceptions” to the rule of privity, see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 135 (per Brennan J), and 143 (per Deane J)).

[59]    In this case, on the other hand, to adopt what Ormiston JA said in CE Heath v Pyramid Building Society [1997] 2 VR 256 at 270, the “two parties [to the contract] … [have] not themselves raised any issue as to its meaning and effect and at least one of whom [the lessee in each case] object[s] to the court’s interfering with [their] private affairs”. In a case such as that – that is, in this case – where the parties agree that the terms of their agreement have been complied with, and where no source of a right is claimed other than the terms of that agreement, the applicant has no standing to seek declaratory relief, for the reasons explained by Deane J in Trident.

[60]    In any event, Aussie Airlines cannot be read to effect by a side wind a radical change to principles of privity that have been well understood and accepted in Australia since the 19th century. But to accept the councils’ submission about that case would, with great respect, do just that.

[61]    Mr McElwaine also took me to two decisions of the English Court of Appeal which assert that the law has “moved on” since the decision in Meadows Indemnity, and that declaratory relief is now, at least in England, not to be refused on the ground that the claimant is not a party to the relevant contract. See Feetum v Levy [2006] Ch 585, at 606, [82] and Milebush Properties Limited v Tameside Metropolitan Borough Council [2011] EWCA Civ 270 at [35]-[45]. But those cases are of doubtful authority. As the learned authors of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed., 2015) at [19-205] observe, since many previous decisions bound the Courts of Appeal in those cases, “it is difficult, with respect, to see that it was open to [those courts] to state the law differently, particularly by stating that whether a plaintiff who seeks a declaration has a private right against the defendant is merely a matter going to the court’s discretion. The suggestion that the law had ‘moved on’ is concerning. It makes insufficient allowance for the fact that binding decisions stated the law to different effect”.

[62]    Whatever the position in England, the observations in Feetum and Milebush to which I have referred above do not represent the law in Australia. As Nettle J said in CGU Insurance Ltd at 371, [96], the proposition articulated in Meadows Indemnity that a person not a party to a contract has no locus, save perhaps in exceptional circumstances, to obtain a declaration in respect of the rights of other parties to that particular contract because it would be contrary to the whole principle of privity “largely accords” with Australian authority.

40    As the Councils lacked standing to seek the declaratory relief, the primary judge concluded that both proceedings were to be dismissed: Primary Judgment at [14] and [63].

41    On 18 October 2019, after receiving short written submissions from the parties, the primary judge ordered that the Councils pay the Lessees’ costs of the proceedings, including the costs of the Lessees’ cross-claim against the Councils: Clarence City Council v Commonwealth of Australia [2019] FCA 1721.

APPEALS TO THE FULL COURT

Grounds of appeal

42    The Councils appealed the primary judge’s decision to the Full Court on 8 October 2019. The notices of appeal filed by the Councils (which were materially identical) sought that the primary judge’s orders be set aside, and for the proceedings to be remitted to the primary judge for final determination. The notices of appeal raise the following grounds of appeal:

The learned primary judge erred in law as follows:

1.    At [50-51], [53], [56] and [59] in concluding that the privity of contract doctrine operated to deny standing to the appellant for the reason that the claims asserted did not have some basis beyond the mere contract when, properly understood:

(a).    the appellant did not sue on the lease so as to directly enforce it;

(b).    the obligation that is created at clause 26.2 of the lease is incapable of operation absent the taking of action by the appellant namely notification of the equivalent amount to the lessee in each rating year;

(c).    a question before the Court was whether the appellant had given notification of the equivalent amount to the lessee calculated in the manner that the contracting parties required in order to effectuate their bargain;

(d).    the answer to that question did not turn upon the common subjective understanding of the contracting parties as to the meaning of clause 26.2; and

(e).    the declarations sought were functionally related to the role that the contracting parties assumed the appellant would perform by giving notice of the equivalent amount payable;

2.    In his reasoning at [50-51] and [53] and in his conclusion at [55-56] that the appellant was an ‘outsider’ without standing to apply for the declarations that were sought when, correctly understood, a declaration as to the meaning of clause 26.2 would enable the appellant not as an outsider but as the notifier under the contract to correctly calculate and then advise the lessee of the equivalent amount;

3.    In his reasoning at [57] in distinguishing CGU Insurance Ltd v. Blakeley in that he misunderstood that before the appellant could have an expectation of benefit under the leases, it was necessary, as an anterior step, to calculate and notify the lessee of the equivalent amount in a manner consistent with the requirements of the lease and for that reason the declarations sought did not amount to an impermissible incursion upon, an attempt to act inconsistently with or an abandonment of the privity of contract doctrine;

4.    At [58] in distinguishing this Court’s decision in Aussie Airlines Pty Ltd v. Australian Airlines Ltd by confining the principles there set out to cases of controversy between contracting parties when, properly understood, those principles may apply to cases where:

(a).    the controversy is between the claimant and the contracting parties;

(b).    resolution of that controversy turns on the objective meaning of the contract; and

(c).    the outcome impacts upon the claimant’s commercial interests or is otherwise of real and practical importance and is not hypothetical;

5.    At [55]-[56], [58], [59] and or [62] in that he confined his analysis of cases that may involve ‘exceptional circumstances’ to those:

(a).    where the source of the right claimed arises otherwise than by operation of the contract; and

(b).    where the parties to the contract are in dispute as to compliance with the terms of the contract;

and in so doing failed to determine whether the particular circumstances of the case were sufficient namely:

(c).    clause 26.2 cannot operate unless the appellant notifies an equivalent amount to the lessee that is correctly calculated;

(d).    prior to 2014 the appellant had calculated and notified the equivalent amount to the lessee in reliance upon valuations as notified by the Valuer-General pursuant to the Valuation of Land Act 2001, which amounts the lessee paid;

(e).    disputes between the appellant and the respondents only arose in consequence of the undertaking of a revaluation by the Valuer-General, which led to a material increase in the calculation of the equivalent amounts;

(f).    the Commonwealth and the lessee then actively engaged with the appellant, in meetings and in correspondence, in an attempt to reach agreement as to the correct basis for the calculation of the equivalent amounts;

(g).    no agreement was reached;

(h).    the lessee paid, with the knowledge and consent of the Commonwealth, amounts calculated by it despite the contrary notification that was provided by the appellant in each disputed rating year in the form of rates notices; and

(i).    the obvious inference that once the proper meaning of clause 26.2 is determined by declaration, then it is likely that the lessee and the appellant will enter into the agreement that clause 26.2 contemplates, by the exercise of reasonable endeavours on the part of the lessee, with the effect that the appellant will then have an enforceable contractual right to receive the benefit of the calculated equivalent amounts in each rating year and for the duration of the lease;

6.    Overlooked the alternative contention of the appellant that the Fire Service Contribution component of each disputed rates notice is a fee for service, not a tax, that is payable in relation to the leased land with the consequence that the appellant’s statutory right to make and to recover the charge pursuant to the Local Government Act 1993 is a sufficient basis to establish standing for the declaratory relief that it sought.

43    Notices of a constitutional matter were given by the Councils for the purposes of s 78B of the Judiciary Act 1903 (Cth) (Judiciary Act) in relation to the sixth ground extracted above. The notices described the nature of the constitutional matter as follows:

Whether a fire service levy pursuant to s.79 of the Fire Service Act 1979 (Tas) imposed in the form of service rate pursuant to s.93 of the Local Government Act 1993 (Tas) in relation to the [Airports], which is a place acquired by the Commonwealth for public purposes within the meaning of s.52(i) of the Constitution, is properly characterised as a fee for service or an impermissible form of taxation?

Notices of contention

44    On 30 October 2019, the Lessees each filed notices of contention seeking to affirm the primary judge’s decision on grounds other than those relied upon by the primary judge. The notices of contention were in similar terms. The notice of contention filed by the Launceston Lessee provided as follows:

Grounds relied on

Further and in the alternative to the grounds relied upon by the Court below, the proceedings should be dismissed on the following grounds:

1.    The Appellant's claim does not involve a justiciable controversy between the Appellant and the Respondents such as to constitute a “matter” in respect of which the Court has jurisdiction, by reason of the following:

(a)     there is no dispute, and positive agreement, between the First and Second Respondents with respect to the construction and effect of cl 26.2(a) of the Lease;

(b)    there is no dispute, and positive agreement, between the First and Second Respondents as regards those parts of the airport site that fall within and outside of the ambit of cl 26.2(a) of the Lease;

(c)    there is no dispute, and positive agreement, between the First and Second Respondents as to the amounts required to be paid by the Second Respondent to the Appellant under cl 26.2(a) of the Lease for financial year (FY) 2013/14 to 2017/18 inclusive;

(d)    there is no dispute, and positive agreement, between the First and Second Respondents as regards the Second Respondent's compliance with the obligation in cl 26.2(a) of the Lease for each of FY 2013/14 to 2017/18 inclusive;

(e)    there is no dispute, and positive agreement, between the First and Second Respondents as to the basis upon which future payments ought to be made by the Second Respondent to the Appellant in order to comply with cl 26.2(a) for the duration of the Lease;

(f)    the Appellant:

i.    is not a party to the Lease and does not enjoy the benefit of any contractual promise held on trust by the First or Second Respondent under cl 26.2(a) of the Lease;

ii.    has no statutory or other enforceable right to receive from the Second Respondent payment of rates as set by the Appellant pursuant to the Local Government Act 1993 (Tas) in respect of rateable land, or an amount that is equivalent to such rates;

(g)    the right to enforce cl 26.2(a) of the Lease as against the Second Respondent lies with, and only with, the First Respondent;

(h)    the First Respondent would be precluded, if it sought to do so, from seeking to compel the Second Respondent to make any further payment under cl 26.2(a) of the Lease or from seeking relief in legal proceedings on terms that are inconsistent with the representations and conduct as pleaded in the Second Respondent's Statement of Cross-Claim, on the basis that:

i.    any cause of action which the First Respondent may have had as against the Second Respondent under cl 26.2(a) of the Lease for FY 2013/14 to FY 2015/16, and/or for FY 2013/14 until expiry of the Lease, has been discharged by accord and satisfaction.

ii.    the First Respondent is taken to have admitted in its Defence to the Second Respondent’s Statement of Cross-Claim that it would be estopped by operation of a promissory estoppel and/or conventional estoppel for the period from FY 2013/14 to FY 2020/21 inclusive; and

iii.    further and in the alternative, any cause of action which the First Respondent may have had as against the Second Respondent under cl 26.2(a) of the Lease for FY 2013/14 to FY 2015/16 and/or for FY 2016/17 until expiry of the Lease, has been discharged by accord and satisfaction.

2.    Further and in the alternative, the Court does not have original jurisdiction as the matter does not arise under any laws made by the federal Parliament within the meaning of s 39A(1A)(c) of the Judiciary Act 1903 (Cth).

3.    Further and in the alternative, the Court should decline to exercise its discretion to grant the relief sought by the Appellant in the circumstances pleaded at paragraph 1 (a)-(h) above, individually and cumulatively.

45    Notices of a constitutional matter were given by the Lessees for the purposes of s 78B of the Judiciary Act in relation to the first ground of their notices of contention. The notices raised the Lessees’ contention that these proceedings do “not involve a matter arising under a law of the Commonwealth as there is no justiciable controversy to be quelled by the Court”.

Hearing of the appeals

46    The appeals were heard via videoconference on 4 May 2020. Mr McElwaine SC appeared with Ms Cuthbertson of counsel for the Councils, Mr Lenehan SC appeared with Ms Foley of counsel for the Commonwealth, and Dr Stern SC appeared with Ms Coleman of counsel for the Lessees. Each had filed detailed written submissions in support of their respective cases. The parties’ specific submissions are considered in the course of these reasons. A broad summary of the parties’ submissions is as follows.

47    The Councils, with the support of the Commonwealth, contend, in summary, that the Councils have standing in the present case to seek the declaratory relief in respect of the interpretation and application of the leases, and that, relatedly, there is a “matter” before this Court for determination. This follows, in the submission of the Councils and the Commonwealth, because of, first, the real commercial and practical interest of the Councils in obtaining the declaratory relief sought and, second, the existence of a justiciable controversy in respect of the meaning of the leases between the Councils on one hand and the Commonwealth and the Lessees on the other hand. The Councils and the Commonwealth contend that the primary judge erred in concluding that a grant of standing in the present case would jettison the doctrine of privity of contract. The Councils and the Commonwealth further contend that the “matter” in the present case is one that falls within this Court’s federal jurisdiction under s 39B(1A) of the Judiciary Act because, amongst other reasons, the leases owe their existence to federal law.

48    In response, the Lessees contend, in summary, that the primary judge was correct to hold that the Councils did not have standing to seek the declaratory relief in respect of the interpretation and application of the leases. For similar reasons, the Lessees raise (in their notices of contention) that there is equally no “matter” before the Court. According to the Lessees, this follows from the fact that the Councils’ claim for relief is not based on any legal right or entitlement (statutory, contractual or otherwise); that there is no dispute between the parties to the leases as to the meaning of cl 26.2; and that the Commonwealth is otherwise barred from departing from their agreed application of cl 26.2 due to principles of “accord and satisfaction” and estoppel. The Lessees further contend that, even if there is a “matter” before this Court, it has not arisen under laws made by the Commonwealth Parliament. It is insufficient, in the Lessees’ submission, that the leases owe their existence to federal law; the subject of the controversy—the Councils’ asserted entitlement to a benefit under the lease—does not derive from federal law.

LEGAL PRINCIPLES

49    The present case involves the consideration of various interrelated legal concepts, including this Court’s jurisdiction (and the requirement for a “matter”), this Court’s power to award declaratory relief, the standing of a party to obtain such relief, the nature of declaratory relief and the doctrine of privity of contract. Given the conceptual multiplicity, it is convenient to first present the relevant conceptual framework.

Judicial power, jurisdiction and the requirement of a “matter”

50    The Federal Court of Australia, as a court created by the Commonwealth Parliament, may only exercise “judicial power of the Commonwealth”: s 71 of the Constitution; R v Kirby; Ex parte Boilermakers’ Society of Australia [1956] HCA 10; 94 CLR 254 at 271-272 per Dixon CJ, McTiernan, Fullagar and Kitto JJ; see also Alqudsi v The Queen [2016] HCA 24; 258 CLR 203 at [167]-[169] per Nettle and Gordon JJ. It is not possible to precisely define the content of “judicial power” (Precision Data Holdings Ltd v Wills [1991] HCA 58; 173 CLR 167 at 188-189 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ), but it is possible to identify its core characteristics. It is also possible to identify exercises of power that are plainly non-judicial. One example is that the judicial power of the Commonwealth does not extend to the giving of advisory opinions: In re Judiciary and Navigation Acts [1921] HCA 20; 29 CLR 257 at 265-267 per Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ (Re Judiciary Act). Instead, the jurisdiction of this Court is confined to the determination of controversies known as “matters”. This notion has constitutional dimensions, but is also incorporated into statute as a precondition to this Court’s jurisdiction.

51    In the present case, the primary judge required original jurisdiction to hear and determine the Councils’ applications. Section 19(1) of the FCA Act provides that this Court has such original jurisdiction as is vested in it by laws made by the Commonwealth Parliament. Relevantly for the present case, and subject to further matters discussed below, the primary judge derived his original jurisdiction to decide the Councils’ applications from the Judiciary Act. As can be seen from the chapeau to s 39B(1A), the crystallisation of original jurisdiction requires there to be a “matter”:

Original jurisdiction of Federal Court of Australia

Scope of original jurisdiction

…

(1A)     The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:

(a)     in which the Commonwealth is seeking an injunction or a declaration; or

(b)     arising under the Constitution, or involving its interpretation; or

(c)     arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.

…

(See Hooper v Kirella Pty Ltd [1999] FCA 1584; 96 FCR 1 (Hooper) at [41]-[44] per Wilcox, Sackville and Katz JJ.)

52    The nature of a “matter” has been discussed by the High Court on numerous occasions. A convenient starting point is the observation by the plurality of French CJ, Kiefel, Bell and Keane JJ in CGU Insurance Limited v Blakeley [2016] HCA 2; 259 CLR 339 (CGU) at [27] that the requirement for a “matter” has two elements: the “subject matter” element and the “justiciability” element.

53    For the purposes of the invocation of the Federal Court’s original jurisdiction under s 39B(1A) of the Judiciary Act, the “subject matter” element is satisfied by establishing that the subject matter of “all claims made within the scope of the controversy” (Fencott v Muller [1983] HCA 12; 152 CLR 570 (Fencott) at 603 per Mason, Murphy, Brennan and Deane JJ) is one that satisfies at least one of the descriptions in ss 39B(1A)(a), (b) or (c). In the present case, the primary alleged source of jurisdiction is s 39B(1A)(c), namely a matter “arising under any laws made by the Parliament”. The satisfaction of that test was a subject of dispute between the parties in the present case (as considered from [168] below).

54    The “justiciability” element of a “matter” requires “a justiciable controversy, identifiable independently of the proceedings which are brought for its determination and encompassing all claims made within the scope of the controversy”: Fencott at 603, cited in CGU at [30]; see also Palmer v Ayres [2017] HCA 5; 259 CLR 478 (Palmer) at [24] per Kiefel CJ, Keane, Nettle and Gordon JJ. There must accordingly be a “controversy”, which must be “real and immediate”: Re McBain; Ex parte Australian Catholic Bishops Conference [2002] HCA 16; 209 CLR 372 (Re McBain) at [242] per Hayne J. As noted above, abstract or hypothetical questions cannot found a “matter”.

55    Discerning the scope of the controversy for these purposes contains an “evaluative element” (CGU at [30]), as evident from the following passage of Mason, Murphy, Brennan and Deane JJ in Fencott at 608:

What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out.

(See also Hooper at [52]-[54].)

56    In addition to the existence of relevant disagreement, the existence of a “matter” requires there to be “some immediate right, duty or liability to be established by the determination of the Court”: Re Judiciary Act at 265, cited in, amongst other authorities, Palmer at [27] per Kiefel, Keane, Nettle and Gordon JJ. Moreover, there must be an appropriate remedy available to the moving party: Truth About Motorways Pty Ltd v Macquarie Infrastructure Management Ltd [2000] HCA 11; 200 CLR 591 (Truth about Motorways) at [48]-[49] per Gaudron J; Re McBain at [244] per Hayne J. As Gleeson CJ and McHugh J expressed in Abebe v The Commonwealth [1999] HCA 14; 197 CLR 510 (Abebe) at [31], “[i]f there is no legal remedy for a “wrong”, there can be no “matter””.

Declaratory relief

Federal Court’s statutory power

57    This Court must possess legal power to grant the particular form of relief sought by a party. This requirement will inform, but is conceptually distinct from, the jurisdictional issues discussed above: Harris v Caladine [1991] HCA 9; 172 CLR 84 at 136 per Toohey J; Minister for Immigration and Multicultural and Indigenous Affairs v B [2004] HCA 20; 219 CLR 365 at [6] per Gleeson CJ and McHugh J; CGU at [25] and [31] per French CJ, Kiefel, Bell and Keane JJ. Of course, the requirement for the Court to possess power to award the relief is separate from the question as to whether the party is entitled to that relief in the circumstances of a particular case (which is discussed further below).

58    In the present case, the Councils primarily seek the award of declaratory relief in respect of the interpretation and application of the leases. Broadly defined, a declaratory judgment is “a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs”: Lord Woolf and Woolf J, Zamir & Woolf’s The Declaratory Judgment (Sweet & Maxwell, 4th ed, 2011) (Zamir & Woolf’s The Declaratory Judgment) p 1. Such relief “conclusively” establishes the situation it declares to exist between the parties: Parramatta City Council v Sandell [1973] 1 NSWLR 151 at 167 per Hutley JA.

59    For the historical development in England and Australia as to availability of declaratory relief, see Young PW, Declaratory Orders (Butterworths, 1984) (Young’s Declaratory Orders) Ch 3; Heenan EM, “History of Declaratory Relief – A Distinct Remedy Beyond Equitable Affiliations” in Dharmananda K and Papamatheos A (eds), Perspectives on Declaratory Relief (The Federation Press, 2009) (Heenan’s History of Declaratory Relief) pp 51-88; Zamir & Woolf’s The Declaratory Judgment, Ch 2; Heydon JD, Leeming MJ and Turner PG, Meagher’s Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, LexisNexis Butterworths, 2015) (Equity: Doctrines & Remedies) pp 610-614 and Aronson M, Groves M and Weeks G, Judicial Review of Administrative Action and Government Liability (6th ed, Thomson Reuters, 2017) (Judicial Review of Administrative Action) pp 952-955.

60    Today, the source of power to award declaratory relief may derive, where applicable, from a superior court’s inherent jurisdiction (Ainsworth v Criminal Justice Commission [1992] HCA 10; 175 CLR 564 (Ainsworth) at 581-582 per Mason CJ, Dawson, Toohey and Gaudron JJ) or statute. There is also debate (which is unnecessary to address in the present case) as to whether declaratory relief derives from equitable jurisdiction, or if it is simply a statutory remedy that happens to have enjoyed a close association with the Court of Chancery: see Zamir & Woolf’s The Declaratory Judgment at pp 135-138; Heenan’s History of Declaratory Relief at pp 79-80 and 83-88; Donaldson G, “Discretion in Declaratory Relief” in Dharmananda K and Papamatheos A (eds), Perspectives on Declaratory Relief (The Federation Press, 2009) pp 123-128 and Equity: Doctrines & Remedies at p 610.

61    Moreover, the Federal Court does not possess an “inherent” (in the sense of non-statutory) jurisdiction: VTAG v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCAFC 91; 141 FCR 291 at [30] per Heerey, Finkelstein and Lander JJ, citing DJL v Central Authority [2000] HCA 17; 201 CLR 226 at [25] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; see also Pasini v United Mexican States [2002] HCA 3; 209 CLR 246 at [94] per Kirby J; although cf Aussie Airlines at 414 (where Lockhart J appeared to equate the Federal Court with a superior court that has “inherent power to grant declaratory relief”). The Federal Court’s authority to grant declaratory relief must instead be sourced from Commonwealth statute: see French RS, “Declarations: Homer Simpson’s Remedy – Is There Anything They Cannot Do?” in Dharmananda K and Papamatheos A (eds), Perspectives on Declaratory Relief (The Federation Press, 2009) p 42.

62    This Court’s primary source of power is the FCA Act. Relevantly, to the extent that this Court is otherwise vested with jurisdiction (Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; 201 FCR 378 (MSY Technology) at [8]-[9] and [21] per Greenwood, Logan and Yates JJ), s 21 of the FCA Act empowers the Federal Court as follows:

21     Declarations of right

(1)     The Court may, in civil proceedings in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed.

(2)     A suit is not open to objection on the ground that a declaratory order only is sought.

63    It is clear from the terms of s 21 of the FCA Act that declaratory relief may be awarded regardless of whether or not any consequential relief is or could be claimed by the applicant: see Aussie Airlines at 414, and the authorities cited therein. In relation to s 21 generally, see MSY Technology at [8]-[11].

64    The word “right” in the expression “declarations of right” in s 21(1) is used in a sense that is “wide and loose”: Sankey v Whitlam [1978] HCA 43; 142 CLR 1 (Sankey) at 23 per Gibbs ACJ (writing in the context of s 75 of the Supreme Court Act 1970 (NSW)). In Sankey, Gibbs ACJ stated that the word “right” “includes what might more precisely be described as privileges, powers and immunities”. (In relation to the breadth of this concept generally, see Judicial Review of Administrative Action at pp 956-960.) And, as Foster J observed in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) FCR 89 at 108, “[t]o the extent that the appropriate form of relief in a particular proceeding is declaratory relief, that relief must, as a matter of interpretation, qualify as being a “binding declaration of right”…”.

65    Section 23 of the FCA Act additionally confers upon the Federal Court broad powers to award relief to a party:

23     Making of orders and issue of writs

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.

66    To the extent that this Court is otherwise vested with jurisdiction, s 23 of the FCA Act empowers this Court to make a broad range of orders (albeit with limitations): see Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77; 378 ALR 1 at [325] per Middleton and O’Bryan JJ. The orders that s 23 empowers the Court to make include “[a] final judgment by way of a declaration” where “it determines, in a binding way, rights and/or liabilities of one or more of the parties”: Ho v Grigor [2006] FCAFC 72; 151 FCR 236 at [54] per French, Stone and Besanko JJ. This relief is necessarily final, as an “…‘[i]nterlocutory declaration’ is a form of order not known to the law”: Graham Barclay Oyster Pty Ltd v Ryan [2002] HCA 54; 211 CLR 540 at [128] per Gummow and Hayne; see also Gordon v Lever [2018] NSWCA 43; 97 NSWLR 90 at [112] per Sackville AJA, with McColl and White JJA agreeing.

Standing, discretion and a “matter”

67    An applicant for declaratory relief must also have standing (or locus standi), which is the metaphor adopted to describe the interest required to obtain relief: Allan v Transurban City Link Ltd [2001] HCA 58; 208 CLR 167 at [15] per Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ. Furthermore, even if a party has standing, there remains the residual question as to whether the Court ought award declaratory relief in the circumstances of the particular case. Although the requirements of jurisdiction, power, standing and discretion are conceptually distinct, there is difficulty disentangling these stages of analysis in the context of declaratory relief: IMF (Australia) Ltd v Sons of Gwalia Ltd [2004] FCA 1390; 211 ALR 231; 41 ACSR 111; 22 ACLC 1,554 at [45] per French J; Edwards at [36] and Macks v Viscariello [2017] SASCFC 172; 130 SASR 1 (Macks) at [672] and [678] per Lovell J, Corboy and Slattery AJJ. These questions, as Hayne J expressed in Kuczborski v Queensland [2014] HCA 46; 254 CLR 51 (Kuczborski) at [98], “cannot be separated into watertight compartments”.

68    By way of illustration, in Young’s Declaratory Orders, Peter Young AO (then writing as a member of counsel) expressed (at pp 9-10) that “six factors must be present before there can be a declaratory order”, namely:

1.     There must exist controversy between the parties …;

2.     The proceedings must involve a “right” …;

3.     The proceedings must be brought by a person who has a proper or tangible interest in obtaining the order, which is usually referred to as “standing” or “locus standi” …;

4.     The controversy must be subject to the court’s jurisdiction both within the court’s own charter and also within the jurisdiction so far as private international law rules are concerned …;

5.     The defendant must be a person having a proper or tangible interest in opposing the plaintiff’s claim …;

6.     The issue must be ripe … It must not be merely of academic interest, hypothetical or one whose resolution would be of no practical utility.

(These factors were referred to in the decision of the Full Court of the Supreme Court of South Australia in Macks at [677].)

69    It is therefore apparent that Young conceptualised the requirement of standing (being factor number 3 above) as distinct from other factors concerning the existence and nature of the underlying controversy and the quality of the relevant respondent’s interest. This stands in contrast to the categorisation by Lockhart J (with the agreement of Spender and Cooper JJ) in Aussie Airlines (a case that is discussed in detail below), where his Honour (at 414) subsumed the latter factors within the requirement of standing, as follows:

For a party to have sufficient standing to seek and obtain the grant of declaratory relief it must satisfy a number of tests which have been formulated by the courts, some in the alternative and some cumulative. I shall formulate them in summary form as follows:

•    The proceeding must involve the determination of a question that is not abstract or hypothetical. There must be a real question involved, and the declaratory relief must be directed to the determination of legal controversies: Re Judiciary and Navigation Acts (1921) 29 CLR 257. The answer to the question must produce some real consequences for the parties.

•    The applicant for declaratory relief will not have sufficient status if relief is “claimed in relation to circumstances that [have] not occurred and might never happen”: University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10 per Gibbs J: or if the Court's declaration will produce no foreseeable consequences for the parties: Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 180 per Mason J and at 189 per Aickin J.

•    The party seeking declaratory relief must have a real interest to raise it: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437 per Gibbs J and Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [v British Bank for Foreign Trade Ltd [1921] 2 AC 438] at 448 per Lord Dunedin.

•    Generally there must be a proper contradictor: Russian Commercial & Industrial Bank at 448; and Ainsworth at 596 per Brennan J.

70    To cloud matters further, even where the range of factors referred to in Young’s Declaratory Orders and Aussie Airlines are present, there remains a residual discretion as to whether or not relief should be granted in the circumstances of the particular case: Australian Conservation Foundation Inc v The Commonwealth [1980] HCA 53; 146 CLR 493 at 511 per Aickin J. It is established that this discretion is very wide: J N Taylor Holdings Limited (In liquidation) v Bond (1993) 59 SASR 432 (JN Taylor) at 435-436 per King CJ, with Prior and Perry JJ agreeing. Indeed, Gibbs CJ expressed in Forster v Jododex Australia Pty Ltd [1972] HCA 61; 127 CLR 421 at 437 that it was a discretion that was “neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise”.

71    Given the breadth of this remedial discretion, it is difficult to identify factors that guide its positive exercise by the courts. Where the requirements of a “matter” and standing are satisfied, and the terms of the declaration sought accurately state the existence or non-existence of the relevant legal state of affairs, the award of the declaration will naturally follow in many cases. But there may be instances where the grant of declaratory relief is otherwise not in the interests of justice in the particular circumstances. (For instance, in the context of third parties to an insurance contract, see Young’s Declaratory Orders at p 168.) In the present case, however, it is unnecessary to determine the precise circumstances in which this would occur. Given the primary judge’s reasoning did not reach this stage of analysis, it is sufficient to focus on the principles governing a party’s standing to seek declaratory relief.

72    As can be seen from the discussion above, there is a strong interrelationship between the jurisdictional question as to the existence of a “matter” and the existence of standing to seek declaratory relief. This follows from the fact that the power to award declaratory relief is “confined by the considerations which mark out the boundaries of judicial power”: Ainsworth at 582, cited in CGU at [83] per Nettle J. As a result, it is “conceptually awkward, if not impossible” to sever the requirement of a “matter” and standing: Croome v State of Tasmania [1997] HCA 5; 191 CLR 119 (Croome) at 132 per Gaudron, McHugh and Gummow JJ; see also Re McBain at [243] per Hayne J.

73    Although the existence of jurisdiction is logically anterior to the existence of standing, it has been observed that, within federal jurisdiction, the question whether a party has standing to seek and obtain declaratory relief is subsumed within the constitutional requirement of a “matter”: Truth about Motorways at [45] per Gaudron J and [122] per Gummow J; Pape v Federal Commissioner of Taxation [2009] HCA 23; 238 CLR 1 at [152] per Gummow, Crennan and Bell JJ (and the cases cited therein) and Plaintiff S10/2011 v Minister for Immigration and Citizenship [2012] HCA 31; 246 CLR 636 at [68] per Gummow, Hayne, Crennan and Bell JJ; see also Abebe at [32] per Gleeson CJ and McHugh JJ and Kuczborski at [98] per Hayne J.

74    The authors of Equity: Doctrines & Remedies express the view (at p 627) that “[t]he subsuming metaphor … is not intended to mean that the notion of a ‘matter’ is larger than the notions of sufficient or real interest in the sense that, where the plaintiff lacks a sufficient or real interest, there may nevertheless be a matter”. Rather, the subsuming metaphor “seems intended to mean that instead of asking whether the plaintiff has a sufficient or real interest, the correct question is whether there is a matter between the parties”. Although this appears to be the prevailing authoritative view, French CJ in Kuczborski, despite accepting that the two questions were strongly linked, questioned (at [5]) whether the question of standing was subsumed within the question of a matter in this manner. In his Honour’s view,

[a] negative answer to the question – is there a matter before the Court in which it has federal jurisdiction? – would render the question of the plaintiff’s standing moot. On the other hand, an affirmative answer to the question – is there a matter? – may not be sufficient to answer the question whether the plaintiff has standing.

(Citations omitted; emphasis added.)

75    This precise interrelationship between the requirements of a “matter” and standing remains largely academic. In the present case, however, the question of standing is principally raised in the Councils’ appeals, and the question of jurisdiction (and the requirement for a “matter”) is principally raised in the Lessees’ notices of contention. As a result, although these considerations are conceptually distinct (as explained above), they both substantially arise in the present case.

Doctrine of privity of contract

76    The heart of the primary judge’s reasoning for determining that the Councils lacked standing to seek the relevant declaratory relief was that permitting the Councils to obtain such relief “would involve jettisoning the doctrine of privity”: Primary Judgment at [56] (as extracted above at [39]). To assess this observation, it is important to outline what the doctrine of privity of contract is, and what it is not.

77    The doctrine of privity of contract, at its simplest, is reflected in the general rule that a person who is not a party to a contract can neither enforce that contract, nor incur any obligations pursuant to that contract. As such, “privity” in this context “denotes an essentially negative rule”: Wollongong Coal Ltd v Gujarat NRE India Pty Ltd [2019] NSWCA 135; 100 NSWLR 432 at [59] per Leeming JA, with Bathurst CJ and McCallum JA agreeing, citing Mason A, “Privity — A Rule in Search of Decent Burial?” in Kincaid P (ed), Privity — Private justice or public regulation (Ashgate, 2001) p 88; see also Kowalski v Mitsubishi Motors Australia Staff Superannuation Fund Pty Ltd [2018] SASCFC 44 at [62] per Nicholson J, with Kourakis CJ and Hinton J agreeing.

78    The historical development of the doctrine is traced in Trident at 114-115 per Mason CJ and Wilson J and at 128-129 per Brennan J. (See also Palmer VV, The Paths to Privity: A History of Third Party Beneficiary Contracts at English Law (The Lawbook Exchange, Ltd., 2006) and Furmston M and Tolhurst GJ, Privity of Contract (Oxford University Press, 2015) (Furmston and Tolhurst’s Privity of Contract) Chs 1-2.) That history reveals that conflicts in the common law as to the rights of third parties to enforce the terms of a contract were broadly settled with the 1861 decision of Tweddle v Atkinson (1861) 1 B&S 393; 121 ER 762, where Wightman J expressed (at B&S 398; ER 764) that “no stranger to the consideration can take advantage of a contract, although made for his benefit”. (On Tweedle generally, see Furmston and Tolhurst’s Privity of Contract at pp 5-9 and Treitel G, “Third Parties” in Chitty on Contracts (33rd ed, Sweet & Maxwell, 2018) Vol 1 (Chitty on Contracts) p 1418.)

79    The doctrine of privity of contract is rightly described today as settled and fundamental, although its application is modified by statute, and the application of the general rule underpinning the doctrine may be contestable in particular circumstances. For general commentary on the doctrine, see Furmston and Tolhurst’s Privity of Contract; Sedden NC and Bigwood RA, Cheshire and Fifoot: Law of Contract (11th ed, LexisNexis Butterworths, 2017) Ch 7; Carter JW, Contract Law in Australia (7th ed, LexisNexis Butterworths, 2018) Ch 16 and Chitty on Contracts, Ch 18; Heydon JD, Heydon on Contract (Thomson Reuters, 2019) (Heydon on Contract) Ch 12.

80    Although the rule underpinning the doctrine of privity of contract is simple, it is necessary to look closer at its application to comprehend its true operation: Coulls v Bagot’s Executor and Trustee Co Ltd [1967] HCA 3; 119 CLR 460 (Coulls) at 494 per Windeyer J. The most prominent statements of the doctrine of privity of contract in Australia are in the High Court’s decisions of Wilson v Darling Island Stevedoring & Lighterage Co Ltd [1956] HCA 8; 95 CLR 43 (Wilson), Coulls and Trident. It is unnecessary for the purposes of the present case to explore the facts of those decisions in depth. However, two observations are useful for present purposes. The first is to observe that those decisions did not involve claims for declaratory relief. Rather, each case involved an attempt by a third party to a contract to enforce, or sue upon, the terms of the contract.

81    The second is to focus on the manner in which the judges in those cases characterised the general rule underpinning the doctrine of privity of contract. The references to the central rule included the following:

(1)    “the defendant is not a party to the contract” and therefore “it can neither sue nor be sued on that contract”: Wilson at 67 per Fullagar J, with Dixon CJ agreeing;

(2)    “a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations”: Coulls at 478 per Barwick CJ, quoted with approval in Trident at 127 per Brennan J (dissenting);

(3)    “no one can sue on a contract except those who are contracting parties”: Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 (Vandepitte) at 79 per Lord Wright (for the Privy Council), quoted in Coulls at 494 per Windeyer J;

(4)    “a plaintiff who sues on a promise must shew a consideration for it provided to him”: Coulls at 495 per Windeyer J;

(5)    “a third party cannot sue upon a contract and … a stranger to the consideration cannot maintain an action at law upon it”: Trident at 115 per Mason CJ and Wilson J;

(6)    “when A (a promisor) contractually promises B (a promisee) to confer a benefit on C, a third party who is not a party to the contract and who has given A no consideration for the promise, C acquires no right to sue A on the promise”: Trident at 132 per Brennan J (dissenting);

82    Similar statements are found in the key decisions of the House of Lords and the Privy Council upon which the Australian decisions are founded: Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 853 per Viscount Haldane LC; Vandepitte at 79. See also Beswick v Beswick [1968] AC 58 at 85 per Lord Guest and 92-93 per Lord Pearce.

83    It may therefore be observed from the series of statements above that the general rule underpinning the doctrine of privity of contract is regularly recited as imposing a restriction on a third party from suing “on” or “upon” a contract (or expressions to similar effect). (The importance of this notion is returned to at [89] below.) Even so, it is necessary to contend with the other statements in the key Australian decisions that adopt broader language to express the scope of the general rule. An example is the statement of Kitto J in Wilson at 80 (as quoted in Trident at 129 per Brennan J and 142 per Deane J) that “the only persons entitled to the benefits … of a contract are the parties to it” (emphasis added). Construed broadly, this statement appears to promote a wider operation of the general rule than simply preventing contractual third parties from suing “on” or “upon” a contract.

84    A similar statement to that expressed by Kitto J in Wilson was expressed by Deane J in Trident. In addition, in the decision which was appealed to the High Court in Trident, the New South Wales Court of Appeal relevantly held that, at common law, a beneficiary under a policy of insurance can sue on the policy even though it is not a party to the policy and provides no consideration: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270. On appeal in the High Court, Deane J wrote one of six separate, and largely differing, judgments in respect of the core focus of that case—namely, whether there was an exception to the rules of contractual privity for third party beneficiaries under an insurance contract. For the purposes of the present case, it is unnecessary to consider the facts of, and reasoning in, Trident in detail, other than to emphasise that Deane J’s judgment was an isolated approach adopted in that case.

85    As a result of the divergent reasoning in Trident, the precise precedential value of the High Court’s decision is uncertain: see Benson v Rational Entertainment Enterprises Ltd [2018] NSWCA 111; 97 NSWLR 798 at [112]-[115] per Leeming JA, with Beazley P and Emmett AJA agreeing and Furmston and Tolhurst’s Privity of Contract at p 25. Although their analyses in respect of the doctrine of privity of contract differed, Mason CJ and Wilson JJ in a joint judgment, and Toohey J and Gaudron J writing separately, formed the ultimate majority in Trident, dismissing the appeal from the New South Wales Court of Appeal. Brennan J and Toohey J, each writing separate judgments in dissent, would have allowed the appeal. Deane J, like Brennan J and Toohey J in the minority (and Gaudron J in the majority), was not willing to reform or abrogate the strict privity rule. However, Deane J alone concluded that, although the beneficiary under the insurance policy in Trident was not entitled to enforce the indemnity, it should nonetheless be afforded an opportunity to establish that the policy created a trust in its favour in respect of the benefit of the insurer’s promise to indemnify it: ibid at 147-154; Furmston and Tolhurst’s Privity of Contract at p 22-23.

86    Given the varying approaches adopted in Trident, and particularly the unique outcome reached by Deane J, the primary judge, with respect, may have relied too heavily on Deane J’s reasoning in Trident to inform his Honour’s analysis as to the impact of the doctrine of privity of contract on the Councils’ standing in the present case. Nevertheless, it is convenient to concentrate on Deane J’s reasoning given the focus of the primary judge’s analysis. The following extract from Deane J’s judgment in Trident (at 142-143) is pertinent:

Professor Anson’s description of the rule of privity as “an integral part of our conception of contract” can be readily explained by further reference to the first edition of his classic textbook …:

“A contract is an agreement between two or more persons, by which an obligation is created, and those persons are bound together thereby. If the obligation takes the form of a promise by A to X to confer a benefit upon M, the legal relations are nevertheless unaffected by that obligation. He was not a party to the agreement. He was not bound by the vinculum juris which it created, and the breach of that legal bond cannot affect the rights of a party who was never included in it.”

This explanation of the general rule remains valid to the present day. Indeed, it corresponds with that advanced by Barwick C.J. in Coulls when his Honour commented that he would “find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another”. As those explanations make clear, the rule of privity is not properly to be seen as a rule of exclusion of rights of action which would otherwise exist. It is a statement or reflection of an aspect of the nature of a contract, namely, that a contract between two or more parties does not, of itself, directly confer rights or impose liabilities upon persons who are not parties to it. If a third party is to be entitled to rights and subject to obligations in relation to a contract to which he is a stranger, those rights and obligations must have some basis, either in statutory provision or in common law principle, beyond the mere contract. They cannot be based merely on the contract since the contract, of itself, directly operates only between the parties to it. On the other hand, if they arise by reason of the operation of some other principle or some statutory provision, the rule of privity will have nothing to say to them. It is in that context that it would seem accurate to say, as Fullagar J.: [Wilson] and Lord Reid ([Scruttons Ltd v Midland Silicones Ltd [1961] UKHL 4; [1962] AC 446]) have suggested, that there are no true exceptions at common law to the rule of privity.

(Citations omitted and emphasis added.)

87    The emphasised sentences in the extract above underpin the primary judge’s reasoning for rejecting the Councils’ claims to standing in the present case. This is evident in the following extract from the Primary Judgment:

[48]     … Mr McElwaine [i.e. Senior Counsel for the Councils] put the proposition that it is not necessary to establish that some legal right of the councils is infringed, and that it is sufficient if they are “to receive a benefit under a contract to which one is not a party by reason of the imposition of an obligation by one contracting party upon the other”.

[49]     At that point, I asked him: “But doesn’t [that] run headlong into what Deane J said in Trident, that the right can’t be derived from the contract itself, otherwise why do we have a privity rule?” Our exchange continued:

MR McELWAINE SC : No. And I didn’t mean to submit that … It’s not founded in this case upon some right that arises under the contract to interfere with the contract.

O’CALLAGHAN J: So what is it founded on?

MR McELWAINE SC: It’s the benefits that are received from a proper interpretation and application of a contract. So it goes back to the objective contract theory point…

[50]     With the greatest respect to counsel, it seems to me that our exchange puts into sharp relief the fact that the councils’ case does run headlong into the fundamental proposition enunciated by Deane J in Trident that if a third party is to be entitled to rights in relation to a contract to which it is a stranger, those rights must have some basis beyond the mere contract, and that if they have no such basis, the law will not recognise them.

88    It may readily be accepted that what the Councils are ultimately seeking to obtain from the grant of declaratory relief in respect of the leases in these proceedings may be characterised, in a broad sense, as seeking to validate an entitlement to “benefits … of a contract” (to quote Kitto J in Wilson) or “rights … in relation to a contract” (to quote Deane J in Trident). It should not be a mystery that the Councils are seeking to derive higher amounts of rates in relation to Airport sites (and the only method of doing so is pursuant to the leases, as constitutional limitations otherwise apply). Even so, to read and apply the remarks of Kitto J in Wilson or Deane J in Trident in this breadth would be to misstate the true scope of the doctrine of privity of contract. Indeed, Deane J’s broader expression of the general rule (as extracted above at [86], and as relied on by the primary judge) may conflict with other narrower expressions of the rule by Deane J in that case, such as the observation (at 152) that “it has long been the settled law of this country that it is of the very nature of a contract that it does not, of itself, confer any direct right of enforcement upon a person who is not a party to it” (emphasis added).

89    As can be seen from the series of statements derived from Wilson, Coulls and Trident (as extracted above at [81]), the general rule is typically recited as imposing a restriction on a third party from suing “on” or “upon” a contract (or expressions to similar effect). In this context, to sue “on” or “upon” a contract does not carry the broader meaning of a party commencing legal proceedings in relation to, or in connection with, the contract. Neither does it mean commencing legal proceedings to indirectly derive benefits from a contractual relationship. For this reason, many so-called “exceptions” to the doctrine of privity of contract—for instance (and where applicable), agency, assignment, covenants that run with land, trust and tort (amongst others)—are not true exceptions to the doctrine at all: Wilson at 67 per Fullagar; Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 at 473 per Lord Reid; Trident at 134-135 per Brennan J and 143 per Deane J (as cited in the Primary Judgment at [58]); Furmston and Tolhurst’s Privity of Contract at p 44. Instead, these “exceptions” either “involve a method of creating privity or using other legal institutions … to enforce rights”: ibid.

90    The restriction on a third party from suing “on” or “upon” a contract under the general rule instead refers to the direct enforcement of obligations arising under the contract pursuant to a right of action derived from that contractual relationship. The “enforcement” of such obligations for these purposes entails that the enforcer will obtain a judgment capable of being judicially enforced by execution, which is otherwise known as an “executory judgment”. And, importantly for the present case, an “executory judgment” may be contrasted with a “declaratory judgment”. This is explained as follows in Zamir & Woolf’s The Declaratory Judgment at pp 1-2:

A declaratory judgment is a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs. It is to be contrasted with an executory, in other words coercive, judgment which can be enforced by the courts. In the case of an executory judgment, the courts determine the respective rights of the parties and then order the defendant to act in a certain way, for example, by an order to pay damages or to refrain from interfering with the claimant’s rights; if the order is disregarded, it can be enforced by official action, usually by levying execution against the defendant’s property or by imprisoning him for contempt of court. A declaratory judgment, on the other hand, pronounces upon a legal relationship but does not contain any order which can be enforced against the defendant. … In other words, the declaration simply pronounces on what is the legal position.

(This passage was quoted in part by Habersberger J in Rosenberg v Fifteenth Eestin Nominees Pty Ltd (No 3) [2011] VSC 66 at [22]-[23] and the Full Court of the Supreme Court of South Australia in Macks at [659]. See also, generally, Preston BJ, “Injunctions in planning and environmental cases” (2012) 35 Australian Bar Review 84 at pp 84-85.)

91    Where a third party to a contract seeks to obtain a declaration in respect of the interpretation or application of that contract, the third party is not seeking to sue “on” or “upon” the contract in the sense necessary to engage the doctrine of privity of contract. The third party has no legally enforceable rights under the contract, and is accordingly not entitled to enforce any aspect of the contract. Moreover, the third party’s entitlement to seek and obtain declaratory relief does not derive from any cause of action arising pursuant to the contract, but instead derives from the relevant declaratory jurisdiction, which, for this Court, is statutory (as introduced above at [61]-[66]). As is evident from the expansive construction given to this Court’s statutory jurisdiction to award declaratory relief (see above at [64]), the operation of that jurisdiction is not contingent upon the enforcement or justification by the applicant of any legally enforceable right. Instead, as Aronson, Groves and Weeks observe in Judicial Review of Administrative Action (at p 957), “the claim for declaratory relief is the right” (emphasis in original). The result is that, to the extent that the award of a declaratory relief to a contractual third party may be characterised as the authentication of that party’s entitlement to some “benefit”, that benefit is not “based on” the contract in the sense necessary to engage the doctrine of privity of contract.

92    The consequence of this analysis is that, contrary to the Lessees’ submission, the act of a third party to a contract seeking and obtaining declaratory relief in respect of the interpretation or application of that contract does not necessarily fundamentally conflict with the common law doctrine of privity of contract. Seeking and obtaining such relief does not necessarily raise a question as to the application of the doctrine of privity of contract. Accordingly, contrary to the primary judge’s analysis (at [56] of the Primary Judgment), and contrary to the submission of the Lessees, the award of declaratory relief to the Councils in the present case (if otherwise warranted) would not “involve jettisoning the doctrine of privity”.

93    It should be clear from this analysis that, with the greatest of respect, the primary judge erred in applying the doctrine of privity of contract in the present case. The primary judge was apparently misdirected by the Lessees’ own erroneous submission that the Councils’ claims depended entirely on an incursion upon principles of privity of contract (see Primary Judgment at [40]). Although notions of “privity”, in the broad sense, are central to the Councils’ standing in the present case (as will be discussed below), the doctrine of privity of contract, and the comments of Deane J in Trident, do not foreclose the Councils’ applications.

94    Although this analysis is sufficient to demonstrate appealable error, it remains necessary to determine whether the Councils possessed standing to seek the declaratory relief in the circumstances of the present case. Put differently, if the doctrine of privity of contract was not the correct prism through which to assess the Councils’ standing, what was?

Third parties to a contract and declaratory relief

95    The parties raised a series of authorities relevant to identifying in what circumstances a third party to a contract will be entitled to seek and obtain a declaration in respect of the interpretation or application of that contract. It is convenient to introduce these authorities at a high level before explaining (from [128] below) how, in our view, the relevant principles derived from those authorities interact and apply in the present case.

Meadows

96    In Meadows Indemnity Co Ltd v Insurance Corporation of Ireland Plc [1989] 2 Lloyd’s Rep 298 (Meadows), the Court of Appeal of England and Wales (constituted by May, Neill and Nourse LJJ) held, in broad terms, that the court below lacked jurisdiction to grant a declaration, at the suit of a reinsurer (Meadows), that the insurer whose liability was the subject of the reinsurance (ICI) was not liable to the insured (ICB). Further details of the dispute in Meadows are set out in the Court of Appeal’s decision (see also the summary in CE Health (a decision defined below at [102]) at 288 per Phillips JA). Relevantly for present purposes, May LJ, with the agreement of Nourse LJ, explained the court’s conclusion as follows at 309:

These two parties [i.e. Meadows and ICB] have no rights or obligations against or to each other; they are not in a contractual relationship. Although there is of course a connection between the contract of insurance on the one hand and of reinsurance on the other, Meadows’ rights are in no way involved in the existing dispute between ICI and ICB. Whether ICI has to pay ICB depends upon the terms and circumstances of the insurance contract between them and, if relevant, any nondisclosure or misrepresentation that occurred between them. In so far as Meadows is concerned, any liability on their part will depend upon the contract of reinsurance and the factual situation which existed between them when this was entered into. As I have said, the position of Meadows is in no way threatened because ICI are vigorously defending ICB’s claim in the Irish proceedings. For my part Meadows' interests are not “vitally affected” within the meaning that one must give to that phrase on the authorities. I accept the general submission that was made to us that a person not a party to a contract has no locus, save perhaps in exceptional circumstances, to obtain a declaration in respect of the rights of other parties to that particular contract. It would be contrary to the whole principle of privity to allow such a person to obtain such a declaration. He has no “rights” in respect of that contract and has no claim for relief under it.

(Emphasis added.)

97    Although references to Meadows feature in subsequent Australian decisions (as discussed below), more recent English authorities observe that the law has “moved on” in that jurisdiction since Meadows: see Feetum v Levy [2005] EWCA Civ 1601; [2006] Ch 585 (Feetum) at [82] per Jonathan Parker LJ, with Ward LJ and Sir Peter Gibson agreeing; Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387; [2010] 1 WLR 318 at [119]-[120] per Aikens LJ; Office of Fair Trading v Foxtons Ltd [2009] EWCA Civ 288; [2010] 1 WLR 663 at [60] per Waller LJ, with Arden LJ agreeing and Milebush Properties Ltd v Tameside Metropolitan Borough Council [2011] EWCA Civ 270; [2011] PTSR 1654 (Milebush Properties) at [44] per Mummery LJ, with Jackson LJ agreeing; see also Zamir & Woolf’s The Declaratory Judgment at p 51-52. However, the primary judge, in response to the Councils raising Feetum and Milebrush Properties stated that these observations did not represent the law in Australia: Primary Judgment at [62].

JN Taylor

98    In J N Taylor Holdings Limited (In liquidation) v Bond (1993) 59 SASR 432, the Full Court of the Supreme Court of South Australia (constituted by King CJ, Prior and Perry JJ), reversing the decision of the primary judge, held that the plaintiff companies in liquidation, who were suing three of their former directors, were entitled to join the directors’ insurer in order to seek a declaration that the insurer was obliged to indemnify the directors in respect of any judgment in favour of the plaintiffs arising out of any “wrongful act” within the terms of the relevant insurance policies. As one director was bankrupt, and the other two directors had left the country, the plaintiffs’ only prospect of obtaining satisfaction rested on s 117 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act): JN Taylor at 437. For context, that provision relevantly then provided, and continues to provide, as follows:

Policies of insurance against liabilities to third parties

(1)     Where:

(a)     a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and

(b)     a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt);

the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred. …

99    King CJ, with whom Prior and Perry JJ agreed, observed, by reference to established authorities, that the jurisdiction to grant declaratory relief is very wide: ibid at 435-436. Despite this, his Honour accepted (at 436-437) that there were boundaries to the court’s jurisdiction:

The proposition that there is no limit to the jurisdiction of the court to grant declaratory relief would be an incomplete and misleading statement of the true position unless there be added the further proposition that there are circumstances which are so contra-indicative to the exercise of the discretion in favour of the grant of declaratory relief that the existence of those circumstances would lead almost inevitably to the exercise of the discretion against the making of a declaration. Examples of such decisively contraindicative circumstances can be found in the cases. A declaration will not be made except in matters “which have a real legal context, and to the determination of which the Court's procedure is apt”: Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [[1977] 1 NSWLR 43] per Rutley JA at 61. There must be some person who has a true interest in opposing the declaration. The question raised must not be purely theoretical. There must not only be a party with a true interest in opposing the declaration, but the plaintiff must have a real interest in having the question determined: Russian Commercial and Industrial Bank v British Bank/or Foreign Trade Ltd [1921] 2 AC 438, per Lord Dunedin at 448. That interest may exist although the apprehended impact on the plaintiff may be no more than a future possibility: Hordem-Richmond Ltd v Duncan [1947] 1 KB 545. If, however, the determination of the question could not affect the plaintiff's legal rights or commercial or personal interests now or in the future, that is to say would “produce no foreseeable consequences for the parties” (Gardner v Dairy Industry Authority (1977) 52 ALJR 180 at 188, per Mason 1), see generally [Ainsworth] at 581-582, the declaration would almost certainly be refused.

100    Then, after extracting the primary judge’s reasons for concluding that the question for determination raised by the plaintiffs in that case was theoretical, King CJ responded as follows (at 438):

I think that that is too narrow a view of the interest of the plaintiffs required to render the issue real rather than theoretical. It is true that the plaintiffs have to surmount certain obstacles before they can gain recourse to the proceeds of the indemnity, but the first and most important of those obstacles is the determination of whether the insurer is liable to indemnify the directors under the policy in respect of any judgment the plaintiffs might recover. If that question is determined against the insurer concurrently with the determination of the defendant directors’ liability to the plaintiffs, the plaintiffs will avoid the costs of a further trial of that issue. Moreover, armed with a declaration of the insurer’s liability to indemnify the directors, the plaintiffs will be far better placed to secure the consent of the trustee in bankruptcy, or alternatively authority to sue in the trustee’s name. It is true that the issue of the insurer’s liability will cease to be a live issue if the plaintiffs fail in their action against the defendants, but, to my mind, their interest in obtaining a declaration of the insurer’s liability concurrently with that of the liability of the defendants, is undeniable. …

(See also ibid at 443 per Prior J.)

101    After taking into account all relevant considerations, in particular the overriding principle that multiplicity of proceedings are to be avoided, King CJ held that the insurer ought to be joined as a defendant: ibid at 442-443.

CE Health

102    In C. E. Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liquidation) [1997] 2 VR 256 (CE Health), the Victorian Court of Appeal (constituted by Tadgell, Ormiston and Phillips JJA), reversing the decision of the primary judge, held that there was no basis for the plaintiff liquidated company, who was suing its former auditors, to join the auditor’s insurers as defendants for the purposes of seeking declarations against the insurers as to the application of policies of insurance between the auditors and the insurers. The plaintiff relied on, amongst other bases, s 117 of the Bankruptcy Act (as extracted above at [98]) to raise an issue as between the plaintiff and the insurers: CE Health at 281-282 and 289-290.

103    In the course of explaining the Court of Appeal’s conclusion, Ormiston JA, with Tadgell JA agreeing, relevantly expressed the following (at 270):

… I do not think that the mere fact that the disputant is the liquidator of a possible creditor of the insured can prevent that liquidator from raising the issue and seeking declaratory relief. I say that largely because that question has been raised and resolved in the J. N. Taylor case, from which leave to appeal to the High Court was refused. If the matter were not free from authority I confess I would have had the gravest doubt whether it was ordinarily appropriate to permit an outsider to seek from the court declaratory relief as to the meaning and effect of a contract between two parties who had not themselves raised any issue as to its meaning and effect and at least one of whom objected to the court's interfering in its private affairs. In substance I believe that was the conclusion reached by the English Court of Appeal in Meadows Indemnity Co. Ltd. v Insurance Corp. of Ireland Plc. [1989] 2 Lloyd's Rep. 298, albeit that that case depended in part on some observations of members of the House of Lords in Gouriet v Union of Post Office Workers [1978] A.C. 435. Perhaps the dicta in that case go too far and it may be conceded that it has been the subject of considerable criticism in Zamir and Woolf, The Declaratory Judgment, 2nd ed., (1986), esp. paras 3.012-6.

(Emphasis added.)

104    Ormiston JA continued (at 270) to express that “of greater concern” to his Honour was, amongst other things, that “not only could the respondent interpose itself in a non-existent dispute between insured and insurer but also that it could do so by adding the insurers as co-defendants in an existing action which was confined originally to the primary claim of the respondent against the insured auditors”.

105    Phillips JA, writing separately, introduced the issue (relevant to the present case) as follows (at 288):

The more difficult question is whether that stranger to the contract between insured and insurer may properly be allowed to seek, and if appropriate obtain, declarations about the extent of an insurance cover which is truly res inter alios acta: cf. Normid Housing Association Ltd. v Ralphs [1989] 1 Lloyd's Rep. 265. On the one hand, Pyramid and its liquidator can scarcely be characterised as officious bystanders. The liquidator has embarked upon lengthy and expensive litigation against individuals whose only resource may be whatever indemnity is available under the contracts of insurance and so the liquidator, on behalf of Pyramid, has a very real concern, which is of commercial significance, to learn the answer to the questions underlying the declarations. …

106    Then, after referring to Meadows and JN Taylor, Phillips JA described (at 289) that “[w]hat is wanted in the plaintiff is a sufficient interest to render its claim to declaratory relief “real rather than theoretical” and if that be the test I think that it is probably satisfied”. Ultimately, though, Phillips JA, like Ormiston JA (with Tadgell JA agreeing), held that, on balance, the relevant considerations weighed against joinder of the insurers.

Aussie Airlines

107    An aspect of Aussie Airlines v Australian Airlines Ltd (1996) 68 FCR 406—namely, Lockhart J’s statement concerning the test for standing to seek and obtain declaratory relief—was extracted above at [69]. In that case, the Full Court of the Federal Court (constituted by Lockhart, Spender and Cooper JJ) held that the applicant company, an intended operator of a domestic airline service, had sufficient standing to seek declaratory relief (against Australian Airlines Ltd, Qantas Airlines Ltd and the Federal Airports Corporation) in respect of the construction and application of leases to which it was not a party. In Aussie Airlines, the first and second respondents were collectively referred to in the judgments as “Qantas” (see ibid at 408), and we accordingly adopt that terminology below.

108    The setting for Aussie Airlines was the deregulation of the Australian airline industry (aspects of which were introduced above at [10]-[13]). As Lockhart J explained (at 407), “[t]o assist the deregulation of the domestic aviation industry, Qantas and Ansett were to be granted long-term leases to enable each of them to develop terminal facilities essential for the operation of their services. Importantly, the leases were to contain provisions compelling both airlines to provide subleases to new entrants to the domestic aviation industry, so that they could widen the sphere of competition and conduct their businesses”.

109    The applicant in Aussie Airlines claimed to be, and sought declaratory relief to the effect that it was, “a new entrant to the domestic aviation industry” within the definition of the expression “Third Party Carrier” in the head leases between the Commonwealth and Qantas (but not the applicant) with respect to major Australian airports. This claim was disputed by Qantas. The preliminary question was whether the applicant had sufficient standing to seek the declaratory relief. At trial, Northrop J answered this question in the affirmative: Aussie Airlines Pty Ltd v Australian Airlines Ltd (No 2) (1996) 67 FCR 451.

110    On appeal, the Full Court agreed with Northrop J. Lockhart J wrote the judgment of the Full Court, with Spender and Cooper JJ in agreement. Lockhart J summarised that, for a party to have sufficient standing to seek and obtain declaratory relief, it must satisfy a number of tests, including that the proceeding must involve a question that is not abstract or hypothetical, that the party seeking relief must have a real interest to raise it, and that there generally must be a proper contradictor: Aussie Airlines at 414, as extracted above at [69].

111    Lockhart J explained (at 414) that, if the applicant had enforceable rights under the head leases, there would be no doubt that it had standing to seek the declaratory relief. However, the question of privity of contract remained peripheral in Aussie Airlines. Lockhart J stated (at 415) that it was unnecessary to determine whether the applicant had enforceable rights in the head leases because the applicant had a requisite interest to establish standing by alternative means. In Lockhart J’s analysis, the question whether the applicant was “a new entrant to the domestic aviation industry” was not a hypothetical question, and the applicant had a real commercial interest in obtaining or being refused the declaratory relief. The nature of the applicant’s interest was summarised by Lockhart J as follows (at 415):

The resolution of the question whether Aussie Airlines is '”a new entrant to the domestic aviation industry”, when making the request to Qantas for subleases, is of real practical importance to Aussie Airlines. … Aussie Airlines made its request to Qantas in February 1995. If negotiations commence and result in the grant of subleases from Qantas to Aussie Airlines, there will be far-reaching ramifications for the prospective business activities of Aussie Airlines; it will be able to obtain aircraft and parts, raise finance for its operations, develop a business plan for its future strategy, and employ staff. Without subleases, Aussie Airlines will be denied a right to carry on the business which it seeks to carry on.

Ashmere Cove

112    In Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; 166 FCR 398 (Ashmere Cove (FCAFC)), the Full Court of the Federal Court (constituted by Heerey, Sackville and Siopis JJ), dismissing an appeal from the decision of French J (Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421; 244 ALR 534 (Ashmere Cove (FCA)), held that investors in a registered management scheme, who had commenced proceedings against the former directors of a liquidated company that was the responsible entity for the scheme, were entitled to join the company’s insurers as respondents to seek a declaration that the insurers were obliged to indemnify the company.

113    In support of their intended claim against the insurers, the investors relied on, amongst other bases, s 562 of the Corporations Act 2001 (Cth) (Corporations Act), which, with similar effect to s 117 of the Bankruptcy Act, relevantly then provided as follows:

Application of proceeds of contracts of insurance

(1)    Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556 …

114    French J’s judgment at first instance centered on the investors’ interest in declaratory relief, and the balancing of considerations in relation to joinder, rather than any jurisdictional questions. After considering the relevant authorities, his Honour, primarily following JN Taylor, held that the investors had a sufficient interest in the declaratory relief sought. French J stated that, “[a]lthough s 562 [of the Corporations Act] confers no legal right on the applicants as against the insurers, it creates a priority right in the proceeds of any successful claim against the insurers which gives them a very real interest in having the insurers’ obligations to KMF determined”: Ashmere Cove (FCA) at [59].

115    The Full Court’s judgment focussed more prominently on the constitutional requirement for a “matter”. The insurers argued that the investors were essentially seeking an advisory and non-binding opinion on the interpretation of the relevant insurance policy because the investors did not have an enforceable remedy against the insurers. The Full Court held that this argument was flawed because, broadly, it failed to appreciate the distinction between a “matter” and a legal proceeding (in relation to which, see Ashmere Cove (FCAFC) at [43]-[44] and Hooper at [50]-[53]) and, more particularly, the fact that the boundaries of the justiciable controversy in that case were not confined by the contractual relationship between the parties to the insurance policy: ibid at [49]-[51].

116    The Full Court further found that the investors had the requisite interest in obtaining the declaratory relief sought, stating the following at [52]:

The Investors plainly have a real interest in establishing, if they can, that the Insurers are liable to indemnify KMF against the claims made against it by the Investors. Certainly they have standing to claim declaratory relief against the Insurers: Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406. Even though the Investors are not at this point seeking orders directly against the Insurers (other than a declaration), they have a variety of steps open to them to secure the benefits of any indemnity available to KMF.

117    Three possible steps were identified by the Full Court at [53], including that “the Investors could take advantage of s 562 of the Corporations Act, should the liquidator receive an amount from the Insurer pursuant to the Policy”. The Full Court consequently held that the determination of the investors’ claim for declaratory relief fell within the judicial power of the Commonwealth, and that joinder was warranted in the circumstances of the case: Ashmere Cove (FCAFC) at [62] and [73]-[75].

118    For completeness, we note that a different result to Ashmere Cove (FCAFC) was reached in similar circumstances by the Queensland Court of Appeal (McPherson JA and Byrne J; Davies JA dissenting) in Interchase Corporation Ltd (In liq) v FAI General Insurance Co Ltd [1998] QCA 180; [2000] 2 Qd R 301 (Interchase). That decision is summarised in CGU at [39]-[42]. It is unnecessary to detail Interchase further, other than to raise the following observation by French CJ, Kiefel, Bell and Keane JJ in CGU regarding the approaches adopted in Interchase:

[42]    The difference between [Davies JA’s minority] approach and that of the majority reflected not so much a difference in principle as a different evaluation of the interest of the plaintiff in bringing the claim against the insurer and the utility of the declaratory relief sought. For the purposes of determining whether there is a “matter” attracting federal jurisdiction in such claims, the approach adopted by Davies JA is to be preferred. It reflected a recognition of the reality of the plaintiff’s interest which was not to be confined by a requirement that the plaintiff demonstrate a claim for vindication of an existing legal right against the insurer.

(Emphasis added.)

Edwards

119    In Edwards v Santos [2011] HCA 8; 242 CLR 421 (Edwards), the High Court, quashing decisions of the Federal Court (both at first instance and on appeal), held that native title claimants had standing to seek a declaration that a grant to certain companies of a petroleum lease by the State of Queensland would be a “pre-existing rights based act” under s 24IB of the Native Title Act 1993 (Cth) (Native Title Act): Edwards at [39] per Heydon J, with French CJ, Gummow, Crennan, Kiefel and Bell JJ agreeing at [1] and Hayne J agreeing at [6]. The context for this claim for relief was that the native title claimants were asserting that certain companies had no right to apply for a lease under s 40 of the Petroleum Act 1923 (Qld) because a previously granted authority to prospect had expired. The High Court’s decision did not refer to the doctrine of privity of contract, but nonetheless provides a useful illustration as to the entitlement to declaratory relief.

120    Heydon J, writing on the question of standing, recognised (at [36]) that Edwards (like the present case) raised various interrelated questions which could not be wholly disentangled, including those in relation to jurisdiction to grant relief, an applicants’ standing and whether the question raised in the case was hypothetical. On the facts of Edwards, Heydon J held that the native title claimants’ claim for declaratory (and injunctive) relief was not outside the Federal Court’s jurisdiction: ibid at [37]. The critical focus was the nature of the native title claimants’ interest in such relief, which was described by his Honour as follows (at ibid):

… The plaintiffs have a sufficient interest to make those claims, because success in those claims would advance their interests in the negotiations which the parties were contractually obliged to conduct. The plaintiffs have standing because they have an interest in the question whether the [authority to prospect] is valid which is greater than that of other members of the public. The questions which the plaintiffs wished to agitate were not hypothetical. The first defendant’s letter of 4 November 2005 had sufficiently indicated the intention of the petroleum defendants to make an application to the Minister under s 40 of the Petroleum Act and it had predicted that success would be “automatic”. If so, the plaintiffs would be seriously disadvantaged because their negotiating position would be gravely weakened; if not, the plaintiffs would be correspondingly better off. If the plaintiffs obtained the first declaration sought, it would produce foreseeable consequences for the plaintiffs and the petroleum defendants by allowing them to continue the process of negotiating the new [Indigenous Land Use Agreement] armed with knowledge of the correct legal position in relation to the [authority to prospect]. (Citations omitted.)

The proposition in the second sentence of the extract above—that the native title claimants had an interest greater than that of other members of the public—was supported by the citation of Onus v Alcoa of Australia Ltd [1981] HCA 50; 149 CLR 27.

121    Importantly, Heydon J then used the Full Court’s decision in Aussie Airlines to exemplify the considerations relevant to determining whether a party has standing to seek declaratory relief. His Honour stated the following at [38]:

An example of how a person can have standing to obtain a declaration and how a court can have jurisdiction to grant a declaration is afforded by Aussie Airlines Pty Ltd v Australian Airlines Ltd. … Lockhart J (Spender and Cooper JJ concurring) said that the question [in Aussie Airlines] was not “hypothetical”, it was of “real practical importance” to the applicant, the applicant had a “real commercial interest” in the relief, the head lessee was “plainly a contradictor”, and there was “obviously a real controversy”. So here, whether or not the plaintiffs have rights enforceable against the petroleum defendants, the question whether the ATP is valid is not hypothetical, it is of real practical importance to the plaintiffs, they have a real commercial interest in the relief, the petroleum defendants (and Queensland) are plainly contradictors, and there is obviously a real controversy. (Citations omitted.)

CGU

122    In CGU Insurance Ltd v Blakeley [2016] HCA 2; 259 CLR 339, the High Court, affirming a decision of the Victorian Court of Appeal, held that the federal jurisdiction invested in the Supreme Court of Victoria authorised that Court to entertain a claim for a declaration by the plaintiff liquidators, against a defendant’s insurer, that the insurer was liable to indemnify the defendant (even though the liquidated company was not party to the contract of insurance): ibid at [70] per French CJ, Kiefel, Bell and Keane JJ and [71] per Nettle J.

123    The liquidators in CGU commenced proceedings against former directors of the liquidated company, and also another company (Crewe) which was alleged to have been a “director” of the liquidated company. Crewe and one of the former directors made a claim on a professional indemnity policy with their insurer, who denied that the policy covered the liability. After Crewe entered voluntary administration, and the former director’s assets were insufficient to cover the liquidators’ claim, the liquidators sought to join the insurer as a defendant for the purposes of seeking a declaration that the insurer was liable to indemnify Crewe and the former director in respect of any judgment obtained by the liquidators.

124    The liquidators’ claim against the insurer was based upon the legal consequence created by s 562 of the Corporations Act (as extracted above at [113]) and, more contingently, s 117 of the Bankruptcy Act (as extracted above at [98]) in the event that the insurer was liable to indemnify Crewe and the former director, if he became a bankrupt, bringing into existence, in favour of the liquidators, a right to the proceeds of the insurance policy payable to Crewe and the former director in respect of their liability to the liquidated company.

125    The High Court held that the liquidators’ intended claim against the insurer, which depended on the existence of liability under the insolvent trading provisions of the Corporations Act, involved questions arising under a law of the Commonwealth: CGU at [32]-[34], [63] and [88]. The High Court also determined, consistent with the Full Court’s decision in Ashmere Cove (FCAFC), that there existed a justiciable controversy between the liquidators and the insurer: ibid at [65]-[69] and [113]. Although the analysis in CGU was wide ranging, for the purposes of this summary it is pertinent to focus on the interaction between the liquidators’ claim to standing and the doctrine of privity of contract. On that topic, the plurality of French CJ, Kiefel, Bell and Keane JJ observed the following:

[67]    As the Akron liquidators have submitted, their claim does not depend upon any incursion upon principles of contract law or privity of contract. They are not claiming as a party to the insurance contract nor as persons otherwise entitled to the benefit of that contract. Their claim is based upon the legal consequence created by s 562 of the [Corporations Act] in the event that CGU is liable to indemnify Crewe Sharp and, more contingently, s 117 of the Bankruptcy Act in the event that CGU is liable to indemnify Mr Crewe and he becomes a bankrupt. That legal consequence would be the bringing into existence, in favour of the Akron liquidators, of a right to the proceeds of the insurance policy payable to Crewe Sharp in respect of its liability to Akron. The interest upon which the claim for declaratory relief is based and CGU’s denial of liability under the policy are sufficient to constitute a justiciable controversy between the Akron liquidators and CGU involving a question arising under a law of the Commonwealth. Because of these statutory provisions, it is the Akron liquidators who stand to benefit (to the exclusion of Crewe Sharp and Mr Crewe) from the making of the declaration sought. It would be distinctly to ignore this reality if the liquidators’ interest in this regard could be defeated by reason of inaction on the part of Crewe Sharp and Mr Crewe against CGU given that the statutory provisions themselves deprive Crewe Sharp and Mr Crewe of all incentive to pursue a claim under the policy.

126    Nettle J, writing separately, stated the following:

[92]    CGU’s submission that the lack of contractual privity between CGU and the liquidators deprived CGU and the liquidators of the character of adversaries (with the result that there was no justiciable controversy between them) requires separate consideration. To a large extent, it centred on an observation of Ormiston JA in CE Heath that it is not ordinarily appropriate to permit an outsider to seek declaratory relief regarding the meaning and effect of a contract about which the parties have not themselves raised any issue. Up to a point, that is correct. Ormiston JA’s reservation about the impermissibility of allowing an outsider to seek a declaration about the meaning and effect of a contract to which the outsider is not party was based on the decision of the Court of Appeal of England and Wales in Meadows Indemnity Co Ltd v Insurance Corporation of Ireland Plc. In Meadows, it was held that the court below lacked jurisdiction to grant a declaration at the suit of a reinsurer that the insurer whose liability was the subject of the reinsurance was not liable to the insured. …

(Citations omitted.)

127    Then, after quoting aspects of the House of Lord’s decision in Gouriet v Union of Post Offıce Workers [1978] AC 435, Nettle J compared Meadows to the facts of CGU as follows:

[95]    In Meadows, the Court of Appeal concluded that the reinsurer had no standing to claim the declarations sought because the reinsurer was not in a contractual relationship with the insured and because, although there was a connection between the contract of insurance and the contract of reinsurance, the reinsurer’s “rights [were] in no way involved in the existing dispute between [the insurer] and [the insured]”. The essence of the decision is encapsulated in May LJ’s statement that:

“I accept the general submission that was made to us that a person not a party to a contract has no locus, save perhaps in exceptional circumstances, to obtain a declaration in respect of the rights of other parties to that particular contract. It would be contrary to the whole principle of privity to allow such a person to obtain such a declaration. He has no ‘rights’ in respect of that contract and has no claim for relief under it.”

[96]    Australian authority largely accords with Meadows. As was recognised in Meadows, however, there are exceptions. Generally speaking it may be correct to say that an outsider has no standing to seek a declaration about the meaning and effect of a contract to which the outsider is not party. But that depends on what is meant by an “outsider” and upon the circumstances in which the parties to the contract have chosen, or been influenced, not to raise an issue. A plaintiff to whom s 562 of the Corporations Act or s 117 of the Bankruptcy Act gives a right to be paid in priority out of the proceeds of a policy of insurance against an insolvent defendant’s liability to the plaintiff is not an “outsider” in any rational sense of the word.

(Citations omitted.)

Reconciliation of principles

128    The key enquiry in the present case is identifying in what circumstances a third party to a contract is entitled to seek declaratory relief in respect of the interpretation or application of that contract. That question is not to be determined by reference to, or constrained by, the common law doctrine of privity of contract. As explained above, that doctrine relates to the circumstances in which a party may sue upon, and obtain an executory judgment in respect of, the contract.

129    Accordingly, to the extent that in Meadows at 309 (extracted above at [96] and quoted in CGU at [95] per Nettle J) May LJ intended to express that the grant of declaratory relief to a contractual third party in respect of the interpretation or application of the contract infringed the common law doctrine of privity of contract, we respectfully disagree. However, we do not read his Lordship’s comments in this manner. We instead agree with the view expressed by the authors of Equity: Doctrines & Remedies (at p 631) that May LJ was not concluding that only parties to a contract can have standing to seek a declaration in respect of it, but rather that the absence of privity supports an inference that the applicant has no real or sufficient interest to seek a declaration. This, as a general proposition, is clearly so, and we otherwise accept that there is reason to be concerned as to the potential for what might be described as unfounded intermeddling by a third party to a contract. But, in the context of the declaratory relief, the solution to that concern is not the doctrine of privity of contract.

130    This is because, where a claim for declaratory relief is involved, the proper focus is instead on the court’s jurisdiction and power in respect of such relief, as well as the applicant’s standing to seek the relief. In the present case, the question of standing is principally raised in the Councils’ appeals, and the question of jurisdiction (and the requirement for a “matter”) is principally raised in the Lessees’ notices of contention. As noted above, although these considerations are conceptually distinct, they both arise in the present case.

131    In order to determine these issues, in our view, it is convenient to assess the salient considerations by reference to two broad factors, namely (1) the existence and quality of the controversy regarding the relevant claim to relief and (2) the quality of the applicant’s interest in the declaratory relief sought. (Inevitably, these factors, like those contained within the taxonomies constructed in previous cases and commentary, are interrelated, and cannot be wholly disentangled from one another. They should also not be construed as exhaustively defining the prerequisites to establishing jurisdiction and standing.)

Existence and quality of the controversy

132    For there to be a “matter” before the court, and for the applicant for declaratory relief to have standing to seek such relief, the first broad factor to consider is the existence and quality of the controversy regarding the contractual third party’s claim to relief. Although the dispute must also satisfy the “subject matter” element of a “matter”, the dominant focus of this factor is instead the “justiciability element” of a “matter”. The broad features of that element were discussed above at [54]-[56]. We now turn to the application of these features in the context of the present case.

Absence of controversy between contracting parties

133    For a third party to a contract to obtain declaratory relief in respect of the interpretation or application of a contract, it is insufficient for that relief to simply be of interest to a third party (in the requisite sense that will be discussed below). The third party must also “be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought”: Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 (Russian Commercial and Industrial Bank) at 448 per Viscount Dunedin, cited in Ainsworth at 596 per Brennan J and Aussie Airlines at 414 per Lockhart J; see also CE Health at 262 per Ormiston JA; Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371; 26 VR 148 at [79] per Vickery J and MST Technology.