Aussie Airlines Pty Ltd v Australian Airlines Ltd & Ors [1996] FCA 813

CATCHWORDS

AVIATION - airline services - lease of terminal facilities.

CONTRACTS - interpretation - whether applicant is a 'Third Party Carrier' - whether applicant is 'a new entrant to the domestic aviation industry' - application must be made in good faith - applicant must hold or have made bona fide application for all necessary licences - questions concerning applicant's financial viability and its strategy beyond terms of head lease are not relevant questions - meaning of 'Relevant Period' - privity of contract.

REMEDIES - declaration - standing - whether issue abstract or hypothetical - whether a 'real question involved' - whether 'foreseeable consequences for the parties' - whether a proper contradictor.

Air Navigation Act 1920

Civil Aviation Act 1988: s. 3, Part III Division 2

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564

Forster v Jododex Australia Pty Limited (1972) 127 CLR 421

Gardner v Dairy Industry Authority (NSW) [1977] 52 ALJR 180

Gregory v Williams (1817) 3 Mer 582; 36 ER 224

In Re Judiciary and Navigation Acts (1921) 29 CLR 257

Les Affreteurs Reunis SA v Leopold Walford (London) Limited [1919] AC 801

Lloyd's v Harper (1880) 16 ChD 290

Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643

Royal Exchange Assurance v Hope [1928] 1 Ch 179

Russian Commercial and Industrial Bank v British Bank for Foreign Trade Limited [1921] 2 AC 438

Telstra Corporation Limited v. Australian Telecommunications Authority (1995) 133 ALR 417

The Commonwealth of Australia v Sterling Nicholas Duty Free Pty Limited (1972) 126 CLR 297

University of New South Wales v Moorhouse (1975) 133 CLR 1

Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43

AUSSIE AIRLINES PTY LIMITED v AUSTRALIAN AIRLINES LIMITED, QANTAS AIRLINES LIMITED, FEDERAL AIRPORTS CORPORATION

VG 608 of 1995

LOCKHART, SPENDER and COOPER JJ.

13 SEPTEMBER 1996

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA)

)

VICTORIA DISTRICT REGISTRY ) No. VG 608 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: AUSSIE AIRLINES PTY LIMITED

Applicant

AND: AUSTRALIAN AIRLINES LIMITED

First Respondent

QANTAS AIRLINES LIMITED

Second Respondent

FEDERAL AIRPORTS CORPORATION

Third Respondent

BETWEEN: AUSTRALIAN AIRLINES LIMITED

First Cross Claimant

QANTAS AIRLINES LIMITED

Second Cross Claimant

AND: AUSSIE AIRLINES PTY LIMITED

Cross Respondent

COURT: LOCKHART, SPENDER and COOPER JJ.

DATE: 13 SEPTEMBER 1996

PLACE: SYDNEY

MINUTE OF ORDER

THE COURT ORDERS THAT:

1. Leave to appeal from the judgment of Northrop J. given on 25 June 1996 be granted.

2. The draft notice of appeal, being exhibit 'MMD6' to the affidavit of Mark Monteith Dobbie sworn on 2 July 1996, be deemed to be the notice of appeal.

- 2 -

3. The appeal be dismissed.

4. Qantas Airlines Limited pay the costs of Aussie Airlines Pty Limited and of Federal Airports Corporation of the motion for leave to appeal and of the appeal; otherwise there be no order for costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

)

VICTORIA DISTRICT REGISTRY ) No. VG 608 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: AUSSIE AIRLINES PTY LIMITED

Applicant

AND: AUSTRALIAN AIRLINES LIMITED

First Respondent

QANTAS AIRLINES LIMITED

Second Respondent

FEDERAL AIRPORTS CORPORATION

Third Respondent

BETWEEN: AUSTRALIAN AIRLINES LIMITED

First Cross Claimant

QANTAS AIRLINES LIMITED

Second Cross Claimant

AND: AUSSIE AIRLINES PTY LIMITED

Cross Respondent

COURT: LOCKHART, SPENDER and COOPER JJ.

DATE: 13 SEPTEMBER 1996

PLACE: SYDNEY

REASONS FOR JUDGMENT

LOCKHART J.

Introduction

This is a motion for leave to appeal from the judgment of a judge of the Court (Northrop J.) given on 25 June 1996. Counsel for the parties, in accordance with the Court's direction, argued the motion for leave to appeal as if it were the hearing of the appeal.

His Honour answered two questions, which had been ordered by another judge of the Court to be heard separately from other issues in the case pursuant to Order 29 rule 2 of the Court's Rules. In addition, Northrop J. made a declaration, to which reference will be made later, and reserved costs.

The case concerns the attempt by the applicant, Aussie Airlines Pty Limited ('Aussie Airlines'), to become a carrier in the Australian domestic airline industry.

For a long time the Parliament endorsed the policy, known as the Two Airline Policy, under which the airlines now known as Qantas and Ansett Airlines ('Ansett') operated the main domestic interstate trunk routes. In 1987 the then Minister for Transport and Communications announced that the Two Airline Policy would end in October 1990. To 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 sub-leases to new entrants to the domestic aviation industry, so that they could widen the sphere of competition and conduct their businesses.

Head Lease

The new policy was carried into effect, inter alia, by a
series of head leases being executed between the Commonwealth of Australia as lessor and the Australian National Airlines Commission as lessee. A separate head lease was entered into with respect to each of the major airports: Sydney, Melbourne, Adelaide, Perth and Coolangatta. In all material respects each of the five leases is in similar form, and each is dated 31 December 1987. The terms of the head leases are important for present purposes. For convenience, the learned primary Judge referred to the Melbourne head lease as illustrative of all the head leases, and I shall adopt the same course. Generally, I shall used the expression 'head lease' when discussing the terms of the Melbourne head lease.

The learned primary Judge and the parties have throughout adopted the course of referring to the Commonwealth of Australia and the Australian National Airlines Commission as 'Qantas'. The reason for this is that since 1988 the first respondent, Australian Airlines Limited, has carried on in Australia the business previously carried on by the Australian National Airlines Commission pursuant to the provisions of the Australian Airlines (Conversion to Public Company) Act 1988. In 1992 Qantas acquired the whole of the issued capital of Australian Airlines Limited and assumed its domestic airlines operation. The third respondent, Federal Airports Corporation ('FAC'), is a statutory corporation created under the Federal Airports Corporation Act 1986. It is now the lessor under the head lease. Hence, it is convenient to refer to the head
lessor as 'FAC' and to the head lessee as 'Qantas'.

It is necessary at this stage to recite the relevant clauses in the head lease because the principal questions turn on their interpretation. Once I have done that it will be easier to understand the issues.

Recital A to the head lease states that the parties to it are:

'both aware of the importance of terminal facilities for the conduct of airline operations, and to this end it is the intention of the Lessor to make available to the Lessee, long term leases of suitable sites for airline terminals, which are on fair and equitable terms to the Lessor and the Lessee and on such terms which make provision for new entrants to the airline industry and commuter and regional airlines'.

The term of the head lease is 20 years, with options for extension to be exercisable by Qantas.

Clause 5 is the critical clause. It relevantly provides as follows:

'5(b)(i) Subject to the other provisions of this Clause, during the Relevant Period the Lessee shall, and if so requested by a Third Party Carrier (a "Sub-Lessee"), enter into a sub-lease of Third Party Carrier Facilities comprised in the Premises for the boarding and/or discharge of
passenger aircraft (a "Sub-Lease");

(ii) Any Sub-Lessee either:

(aa)shall hold; or

(bb)shall have made a bona fide application for,

all licences necessary for the conduct to and from the Airport of a regular public air transport service or passenger charter operation as defined in the Air Navigation Act 1920 and the Air Navigation Regulations.

(i) the Sub-Lessee to be entitled, where appropriate, to provide and remove at its own expense equipment and facilities for use within the Third Party Carrier Facilities;

(ii) a term of not less than one year;

(iii) one and only one option to renew for a period not exceeding the initial term;

(iv) rentals which are consistent with the provisions of paragraph (d);

(v) the provision to the Lessee of reasonable and adequate security for the Sub-Lessee's obligations under the Sub-Lease;

(vi) undertakings on the part of the Sub-Lessee:

(aa) to operate the Third Party Carrier Facilities in a manner consistent with the Lessee's terminal operations; and

(bb)to ensure that security arrangements for its operations are to the same standard as those applied from time to time by the Lessee;

(vii) ...

(viii) ...

(ix) ...

(x) ...

Clause 5(d) provides that the terms of the sub-lease as regards rental shall be reasonable with regard to certain
specified matters, including the following: monies payable by the lessee to the lessor under the lease; the return on capital value of the third party carrier facilities; any costs incurred by the lessee in providing services and staffing facilities related to the operations through third party carrier facilities; and certain additional capital costs required to be spent by the lessee.

The expression 'Third Party Carrier' is defined in clause 2.1 (the definition clause) as meaning relevantly:

'a new entrant to the domestic aviation industry or an existing regional or commuter carrier who becomes a Third Party Carrier pursuant to clause 5(n)'.

Aussie Airlines is not an existing regional or commuter carrier; so in order to be brought within clause 5 it must answer the description of 'a new entrant to the domestic aviation industry'.

The expression 'Third Party Carrier Facilities' is defined in clause 2 as meaning:

'access for a Third Party Carrier to facilities at the Premises of a type normally utilised by the Lessee for its own operations, including appropriate airline identification, display of necessary flight information, baggage check-in facilities, baggage handling facilities to and from trolleys (including necessary staffing), passenger assembly
areas and aircraft parking and aerobridges where appropriate'.

At this point there is little difficulty with the definitions of the expressions used in clause 5(b)(i). The difficulties commence with the expression 'Relevant Period' which is defined by clause 5(a)(i) in the following terms:

'(i)the expression "Relevant Period" means the period which begins at 00.01 a.m. (Local time) on 30th October 1990 and expires at midnight (Local time) on:

(aa)where no third party has made use of Third Party Carrier Facilities prior to 30 October 1995, that date;

(bb)where sub-paragraph (aa) does not apply but at any time after 30th October, 1995 Third Party Carrier Facilities have not been utilised pursuant to a Sub-Lease by a Sub-Lessee for any continuous period of two years, the last day of that period; and

(cc)where neither sub-paragraph (aa) nor (bb) applies, 30th October 2000; ... '

I shall return to this definition later.

Aussie Airlines claims to be 'a new entrant to the domestic aviation industry' within the first part of the definition of the expression 'Third Party Carrier'.

The two questions and the facts

The two questions which Northrop J. heard as separate questions are in the following terms:

'Pursuant to order 29, rule 2 of the Federal Court Rules the Court shall decide separately from all other questions raised by the pleadings filed in the proceeding herein the following questions:

(a) Does the applicant have sufficient standing to seek declaratory relief in terms of the declaration referred to in paragraph 2A of the further amended application?

(b) If the Court determines that the applicant has sufficient standing to seek declaratory relief in the terms of the declaration referred to in its further amended application, was the applicant, in making each of the requests referred to in paragraphs 20 to 22 (inclusive) of the amended statement of claim herein, a "new entrant to the domestic aviation industry" within the meaning of that expression as used in the definition of "third party carrier" in each of the Head Leases referred to in paragraphs 8 and 10 of the amended statement of claim?'

Northrop J. answered both questions in the affirmative and made a declaration substantially in the same terms as question (b). His Honour took the view that it was impossible to answer question (a) until consideration was given to question (b). He therefore found the relevant facts to be as stated in the following paragraphs.

Mr Grey, the Managing Director and Chief Executive of Aussie Airlines (who signed the letter of 21 February 1995) has had extensive experience in the conduct of airline operations within Australia, Papua New Guinea, and the USA, with particular experience in the financial provisions relating to all aspects of the conduct of airline operations. In 1988 Mr Grey commenced the preparation of a plan to establish a domestic aviation business in Australia, intending to introduce a third domestic carrier into Australia following the end of the Two Airline Policy. He caused a number of companies to be formed for this purpose, with Compass Airlines Pty Limited ('Compass') as the principal entity. Compass made a request under clause 5 of each of the head leases relating to the Melbourne, Sydney, Adelaide, Perth and Coolangatta terminals for access to third party carrier facilities. Following negotiations, sub-leases were granted by Qantas to Compass.

Compass commenced its domestic airline passenger service on 1 December 1990 and continued to do so, making use of the requisite terminal facilities, until 20 December 1991 when a provisional liquidator was appointed to Compass. Thereafter, following negotiations between the provisional liquidator and a company, Southern Cross Holdings Limited ('Southern Cross'), that company entered the domestic aviation industry using the terminal facilities previously used by Compass. It conducted its business under the name Compass. Southern Cross operated its airline business until March 1993, when it was placed in liquidation.

Later in 1993 Mr Grey began to consider the establishment of another domestic airline business, and with this in mind he registered the name Aussie Airlines. In February 1995 Aussie Airlines Pty Limited was incorporated with an issued capital of $550. It is controlled by Mr Grey. Other directors are members of his family. Its registered office is a flat in Toorak, Melbourne, which is Mr Grey's residence.

By letter dated 21 February 1995, Aussie Airlines requested Qantas to grant it a sub-lease for third party carrier facilities at the Melbourne terminal for the boarding and discharge of passenger aircraft, with such facilities to be of the kind normally used by Qantas for its own operations at that terminal. By other letters of the same date, Aussie Airlines sought from Qantas similar rights with respect to the airports at Sydney, Perth, Adelaide and Coolangatta.

The letters are lengthy and it is not necessary to refer to them in detail. Aussie Airlines set out the 'basic facilities' which it said should be provided to it at Melbourne Airport, but the list was stated not to be exhaustive. The letter asked Qantas to state when negotiations could commence with respect to the provisions of the sub-leases.

Qantas disputed that Aussie Airlines was a 'new entrant' to the domestic aviation industry on the ground it was not conducting any business at all in the aviation industry, its registered business address was a residence, and it had only a small paid-up capital. Qantas sought 'full details of the reasons, facts and circumstances said by the applicant to justify its request for access to third party carrier facilities as a "new entrant"'. A deal of correspondence followed between Aussie Airlines and Qantas, with Aussie Airlines refusing to give most of the information sought because it did not think it was obliged to do so, and because it regarded Qantas as a potential competitor that should not have access to confidential commercial information.

FAC took a different view to Qantas. On 24 April 1995 the General Manager of FAC wrote to Qantas, noting that Aussie Airlines had requested Qantas to provide it with third party carrier facilities in domestic terminals at the five cities previously mentioned. The letter recited the fact that Mr Grey had given copies of the relevant correspondence to FAC. In the penultimate paragraph of its letter to Qantas, FAC requested Australian Airlines to give effect to its obligations under clause 5 of the leases and to commence negotiations forthwith with Aussie Airlines. The letter concluded:

'I am not aware of any reason why Aussie Airlines should not be treated as a new entrant to the domestic aviation industry. If you believe that Australian Airlines is not obliged to negotiate with Aussie Airlines would you please, as a matter of urgency, provide me with your reasons for this belief'.

The primary Judge's finding

Northrop J. considered the question of standing to seek declaratory relief. His Honour relied substantially upon the judgment of the High Court in Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. His Honour referred also to Russian Commercial and Industrial Bank v British Bank for Foreign Trade Limited [1921] 2 AC 438; and Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643. His Honour found that the facts of the case clearly came within the principles set out in the authorities cited by him, and in particular, Ainsworth. He said:

'There is a real legal controversy between Aussie Airlines and Qantas which is not abstract. There is no hypothetical question. Aussie Airlines has a real interest in the second question, namely whether its claim fails at this point. The consequences of the determination, if made, will produce clear foreseeable consequences for the parties. There are opposing parties having a legal interest to make opposing submissions'.

Accordingly, his Honour answered question 1(a) in the affirmative.

Turning to question (b), his Honour said it was not necessary for him to determine whether the relevant requests made by Aussie Airlines to Qantas for the grant of sub-leases were made during the 'Relevant Period' as defined in the head lease because it appeared:

'... to be accepted by all parties that the letters containing the requests were received by Qantas within that Relevant Period.'

His Honour rejected the submission of Qantas that Aussie Airlines was not a 'new entrant to the domestic aviation industry' because it had not shown that it was in a position to become engaged in the domestic aviation industry. And his Honour rejected the submission that it was for Aussie Airlines to demonstrate positively its ability to conduct a domestic airline business in Australia, or to demonstrate that it has a business plan for conducting the business of an airline.

His Honour said the evidence disclosed that Aussie Airlines was not presently able to enter the domestic aviation industry - it has none of the equipment and personnel required to commence operations; and it does not have the use of the relevant infrastructure facilities to enable it to enter the industry. But, it was not necessary for Aussie Airlines to establish that it had the equipment and personnel required to conduct an airline business in Australia before it could become a new entrant.

His Honour said that the expression 'new entrant to the domestic aviation industry':

'should be construed to include persons, not presently engaged in the domestic aviation industry, but who are seeking the
use of the third party carrier facilities as defined in order to enable the person to enter the domestic aviation industry'.

Later in his reasons for judgment his Honour said:

'In my opinion, a person can be a new entrant if that person has the knowledge and experience to conduct a business in the domestic aviation industry, has the ability to engage in that business if able to obtain the necessary third party carrier facilities even though that ability depends upon the happening of future events and that the person is acting genuinely and in good faith in pursuing the objective of engaging in that activity'.

His Honour was satisfied that Aussie Airlines came within the expression 'a new entrant to the domestic aviation industry' within the meaning of the expression 'Third Party Carrier' in paragraph 5(b)(i) of the head leases. Accordingly he answered question (b) in the affirmative.

Submissions of the parties

In support of Qantas' case for the grant of leave to appeal from Northrop J.'s judgment, counsel for Qantas argued that the principles expounded by the Full Court of this Court in Decor Corporation Pty Limited v Dart Industries Inc (1991) 33 FCR 397 applied to the present motion. In particular, it was said that the case involves the determination of substantive rights, rather than issues of practice and procedure; that substantial injustice would result if leave were to be refused (supposing the judgment of Northrop J. to be wrong); and that the judgment is attended by sufficient doubt to warrant it being reconsidered by the Full Court.

On the substantive issues counsel for Qantas made basically the same submissions that had been made to Northrop J., with some additions. In particular, it was submitted that Northrop J. had not dealt with the argument put to him by Qantas that Aussie Airlines had no privity of contract with Qantas or the FAC (previously the Commonwealth of Australia as the head lessor), and therefore no rights under the head leases, and therefore no standing to sue.

Counsel for Qantas submitted that Aussie Airlines could not gain standing to sue on the basis that it is a beneficiary of a trust of a chose in action constituted by the promises to grant sub-leases under clause 5 of the head lease, because no trust existed. This was submitted in amplification of the submission that, by entering into the head leases, the parties could not be said to have intended to benefit new entrants to the domestic aviation industry by the provision of third party carrier facilities, nor to have intended that new entrants to that industry would be entitled to sue on the head leases to obtain the benefit of the provisions of those facilities in accordance with clause 5. Reliance was placed upon Trident General Insurance Co Limited v McNeice Bros Pty Limited (1988) 165 CLR 107; and on Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43. Counsel for Qantas argued that, whilst an intention to create a trust may be inferred from a contract viewed in the light of the surrounding circumstances, the Court should be reluctant to find such an intention here; and the Court should do so only if there is clear evidence that the promisee meant the benefit of the contract to be enjoyed by third parties.

Counsel for Aussie Airlines relied upon the judgment of Northrop J. In support of the contention that Aussie Airlines is a 'new entrant to the domestic aviation industry' in Australia, counsel argued that Aussie Airlines is not obliged to convince or satisfy Qantas that it is commercially viable. Counsel said that once negotiations for the grant of a sub-lease have commenced, Qantas is entitled to seek adequate security for the performance of Aussie Airlines' obligations under the sub-lease (clause 5(c)(v) and (vi)(bb)). The Court's attention was drawn in particular to clause 5(b)(ii) of the head lease which imposes a condition precedent to the right of any sub-lessee to obtain a sub-lease; it requires the sub-lessee either to hold or to have made a bona fide application for:

'all licences necessary for the conduct to and from the Airport [i.e. the relevant airport] of a regular public air transport service or passenger charter operation as defined in the Air Navigation Act 1920 and the Air Navigation Regulations'.

It was submitted that this condition precedent ensured that the applicant for a sub-lease was competent and had the resources to conduct the business of an air transport carrier.

Findings

I turn to question (a), namely, whether Aussie Airlines has sufficient standing to seek declaratory relief in terms of the declaration referred to in paragraph 2A of the further amended application, namely:

'2A.A declaration against all respondents that the Applicant, in making each of the requests referred to in paragraphs 20-22 (inclusive) of the Amended Statement of Claim herein was, a "new entrant to the domestic aviation industry" within the meaning of that expression as used in the definition of "third party carrier" in each of the Head Leases referred to in paragraphs 8 and 10 of the Amendment Statement of Claim'.

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: In 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 per Gibbs J. at 10; or if the Court's declaration will produce no foreseeable consequences for the parties: Gardner v Dairy Industry Authority (NSW) [1977] 52 ALJR 180 per Mason J. at 180 and per Aickin J. at 189.

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

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

The relevant principles are laid down by the High Court in Ainsworth, in particular in the joint judgment of Mason C.J., Dawson, Toohey and Gaudron JJ. at 581-2. Their Honours made the point that '[i]t is now accepted that superior courts have inherent power to grant declaratory relief'; and '[i]t is a discretionary power which "[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise"' (a reference to a passage from the judgment of Gibbs J. in Jododex at 437). See also Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643 per Dawson J. at 649.

These are the rules that should in general be satisfied before the Court's discretion is exercised in favour of granting declaratory relief.

This Court has undoubted power to grant declaratory relief whether or not any consequential relief is or could be claimed: s. 21 of the Federal Court of Australia Act 1976; and Ainsworth per Mason C.J., Dawson, Toohey and Gaudron JJ. at 581-2. See also The Commonwealth of Australia v Sterling Nicholas Duty Free Pty Limited (1972) 126 CLR 297 per Barwick C.J. at 305; Telstra Corporation Limited v. Australian Telecommunications Authority (1995) 133 ALR 417 per Lockhart J. at 424-5; and Young on Declaratory Orders, 2nd ed. at 74.

If Aussie Airlines had enforceable rights under the head leases, there would be no doubt that it had standing to seek declaratory relief. Determining this question would involve an analysis of the principle, with respect to the facts of this case, that benefits of a promise under a contract may be held on trust, just as any other property may be held on trust. The principle goes back as far as 1817 in Gregory v Williams (1817) 3 Mer 582; 36 ER 224. It was adopted by the House of Lords in Les Affreteurs Reunis SA v Leopold Walford (London) Limited [1919] AC 801; and by the High Court in Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43. See also Jacobs' Law of Trusts in Australia, 5th ed., 1986 (R.P. Meagher and W.M.C. Gummow), at paras. 221-225, and the cases there cited.

In short, privity of contract prevents a third party from suing at law on the contract; but it does not prevent him suing in equity to enforce the trust by compelling the promisee to sue the promisor at law or in equity: Lloyd's v Harper (1880) 16 ChD 290; and Royal Exchange Assurance v Hope [1928] 1 Ch 179. Whether a trust of a chose in action can be established is a matter of fact to be determined in the particular case. The cases go both ways: cases where a trust has been held to have been created are Lloyd's v Harper and Royal Exchange; cases where the courts have declined to recognize a trust include Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70; In re Schebsman [1944] 1 Ch 83; and Purves v Smith [1944] VLR 186. See also the article by J G Starke 'Contracts for the Benefit of Third Parties', (1948) 21 ALJ 382, 422 and 455, (1948) 22 ALJ 67. The question whether the benefit of a contract of carriage of goods by sea should be made available to parties who are involved in the adventure who are not parties to the contract, was discussed recently by Lord Goff of Chieveley, who delivered the judgment of the Judicial Committee in The Mahkutai [1996] 3 WLR 1. His Lordship referred to 'the pendulum of judicial opinion' on this question at 6-12.

However, I do not find it necessary to determine whether Aussie Airlines does have enforceable rights under the head leases.

There are two reasons why it is not necessary to examine this question. First, the determination of the question raises issues of fact which cannot be determined at this early stage of the case, when the Court is concerned with an appeal from findings of the primary Judge on preliminary questions. Secondly, in my opinion it is plain, for other reasons, that Aussie Airlines has the requisite interest to support its right to obtain the declaration sought in paragraph 2A of the amended application.

The resolution of the question whether Aussie Airlines is 'a new entrant to the domestic aviation industry', when making the request to Qantas for sub-leases, is of real practical importance to Aussie Airlines. It is not a mere hypothetical question. Aussie Airlines made its request to Qantas in February 1995. If negotiations commence and result in the grant of sub-leases 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 sub-leases, Aussie Airlines will be denied a right to carry on the business which it seeks to carry on.

Further, Aussie Airlines has a real commercial interest in obtaining or being refused the declaration. Aussie Airlines was incorporated for the express purpose of operating a domestic airline business. Its future business activities, in particular its airline operation, depend entirely upon obtaining sub-leases of the relevant airport terminal facilities and becoming a new entrant to the domestic aviation industry.

Also, Qantas is plainly a contradictor.

There is obviously a real controversy between Aussie Airlines and Qantas. My brief recitation of the relevant facts establishes this. Aussie Airlines has requested Qantas to grant it sub-leases of third party carrier facilities at relevant airports. There has been extensive correspondence between the two corporations, and Qantas has declined to negotiate sub-leases with Aussie Airlines until it is satisfied that Aussie Airlines can demonstrate and support its claim to be a new entrant by providing, inter alia, details of Aussie Airlines' capacity, capital, intentions, equipment and resources. Largely, Aussie Airlines has declined to furnish this information to Qantas; it takes the view that it can not be obliged to give this information to Qantas, as Qantas will be a real competitor of Aussie Airlines if sub-leases are ever granted.

In my opinion the primary Judge correctly answered question (a) in the affirmative.

I now turn to question (b):

'(b)If the Court determines that the applicant has sufficient standing to seek declaratory relief in the terms of the declaration [2A], was the applicant, in making each of the requests referred to in paragraphs 20 to 22 (inclusive) of the amended statement of claim herein, a "new entrant to the domestic aviation industry" within the meaning of that expression as used in the definition of "third party carrier" in each of the Head Leases referred to in paragraphs 8 and 10 of the amended statement of claim?'

It will be remembered that the question arises in the following way. If Aussie Airlines answers the description of 'a new entrant to the domestic aviation industry' within the meaning of the expression 'Third Party Carrier' in the head lease, the answer to this question must be 'yes'. The head lease requires Qantas, if requested by a third party carrier, to enter into a sub-lease of third party carrier facilities. A 'Third Party Carrier' is defined in clause 2.1 (the definition clause) as a 'new entrant to the domestic aviation industry' or 'an existing regional or commuter carrier who becomes a Third Party Carrier pursuant to clause 5(n)'. The latter part of the definition is not applicable.

In my opinion, the expression 'new entrant to the domestic aviation industry' is descriptive of an applicant to Qantas for a sub-lease under clause 5(b)(i). It means simply a person who proposes to enter the domestic aviation industry as a carrier and who is requiring the use of third party carrier facilities.

The concept of 'a new entrant to the domestic aviation industry' necessarily means a person who does not have third party carrier facilities at the relevant airports controlled by Qantas. The person has not yet entered the relevant domestic aviation industry. It would be absurd if an applicant for a sub-lease, who necessarily has not yet entered the domestic aviation industry, must at the time of its application have sufficient paid-up capital or other finance at its disposal to establish its business and conduct it, have aircraft at its disposal, and have other equipment and resources organized.

The primary Judge found that a person may qualify as 'a new entrant to the domestic aviation industry' if that person:

'has the knowledge and experience to conduct a business in the domestic aviation industry, has the ability to engage in that business if able to obtain the necessary third party carrier facilities even though that ability depends upon the happening of future events and that the person is acting genuinely and in good faith in pursuing the objective of engaging in that activity'.

It may be that his Honour has imposed too high a threshold for an applicant for a sub-lease to cross; but I do not find it necessary to develop this point in the present case.

I accept that the application for the sub-lease must be made in good faith and that the person or corporation must genuinely intend, if granted a sub-lease, to be a third party carrier in the domestic aviation industry. The evidence does not suggest, nor has the Court been invited to find, that Aussie Airlines is acting otherwise than in good faith in pursuing the grant of sub-leases. The fact that the paid-up capital is at this stage only $550 and that Aussie Airlines' registered office is the residence of Mr Grey seems to me to have little, if any, relevance to this question.

I find no difficulty with the proposition that, if a person applies for a sub-lease with no real intention of carrying on the business of a third party carrier or in circumstances where it is plainly a frivolous application, it could not be an application made in good faith. Aussie Airlines' application is not so tainted.

Further, questions of Aussie Airlines' financial viability and details of its strategy and plans for the conduct of its future business are not matters with which Qantas is concerned, especially as it would be a competitor of Aussie Airlines. The extent of its concern is described in the head lease. It is plain from clause 5 that any sub-lease must be on reasonable commercial terms; that the sub-lessee must provide to Qantas reasonable and adequate security to ensure that it can perform its obligations under the sub-lease (clause 5(c)(v)); that it must undertake to Qantas to operate the third party carrier facilities in a manner consistent with the terminal operations of Qantas; and that it must ensure that security arrangements and operations are to the same standard as those applied from time to time by Qantas (clause 5(c)(vi)). Also, the terms of the sub-lease as regards rental must be reasonable having regard to the various matters (i) to (iv) specified in clause 5(d) of the head lease.

In addition, it is the fact that any sub-lessee must hold or have made a bona fide application for all necessary licences for the conduct of a public air transport service or passenger charter operation, as defined in the Air Navigation Act 1920 and the Air Navigation Regulations (clause 5(b)(ii) of the head lease). This means that the sub-lessee must have satisfied the relevant statutory authorities of its capacity to operate an airline.

The reference in clause 5(b)(ii) of the head lease to the Air Navigation Act 1920 and the Air Navigation Regulations must be considered in the light of the interpretation clause 2.2(a) of the head lease; it provides that, except to the extent that the context otherwise requires:

'references to any legislation or to any provision of any legislation include any modification or re-enactment of, or any legislative provision substituted for, and all statutory instruments issued under, such legislation or such provision'.

The Air Navigation Act 1920 in its present form provides for the grant of licences, but that Act is concerned primarily with international airline licences (s. 12). And so are the Air Navigation Regulations in their present form (Reg. 191). Hence, the Air Navigation Act 1920 and the Air Navigation Regulations have little to say concerning intra-Australian airlines.

For Aussie Airlines to carry on operations within Australia it must have an 'Air Operator's Certificate' ('AOC'), application for which is made to the Civil Aviation Safety Authority under the Civil Aviation Act 1988. This is the new regime which has taken the place of the regime that was in force at the time the head lease was executed on 31 December 1987. Thus, the combination of clause 5(b)(ii) of the lease and the interpretation clause 2.2(a) leads to the conclusion that clause 5(b)(ii) must be read as if the requirement for a sub-lessee is to hold or to have made a bona fide application for an AOC pursuant to the Civil Aviation Act 1988.

AOC is defined in s. 3 of the Civil Aviation Act 1988 (the interpretation section) as meaning an Air Operator's Certificate issued under Division 2 of Part III of that Act. Division 2 includes ss. 27 to 28BH, and the regime established by those sections is as follows:

1. Aircraft shall not operate in Australian territory except as authorized by an AOC (s. 27(2)(b)).

2. '[A]pplication for an AOC must be in a form approved by CASA' (s. 27AA). CASA means the Civil Aviation Safety Authority established by the Civil Aviation Act 1988 (s. 3).

3. Material which must be submitted by an applicant for an AOC includes a copy of the current flight manual for every type of aircraft covered by the application, and generally, an operations manual, a training and checking manual, and a dangerous goods manual (s. 27AB).

4. CASA may require information or documents from an applicant for an AOC that is reasonably required by CASA to properly consider the application (s. 27AC).

5. CASA is empowered to issue an AOC if, and only if, it is satisfied of the following matters:

– the applicant has complied with or is capable of complying with the provisions of the Civil Aviation Act 1988, the Civil Aviation Regulations and the Civil Aviation Orders that relate to safety (s. 28(1)(a));

– the applicant is suitable to ensure that the AOC operations can be conducted or carried out safely having regard to the nature of the AOC operations (s. 28(1)(b)(i));

– the applicant's chain of command is appropriate to ensure that the AOC operations can be conducted or carried out safely (s. 28(1)(b)(ii));

– the applicant has a sufficient number of suitably qualified and competent employees to conduct or carry out the AOC operations safely (s. 28(1)(b)(iii));

– key personnel of the applicant have appropriate experience in air operations to conduct or to carry out the AOC operations safely (s. 28(1)(b)(iv));

– the facilities of the applicant are sufficient to enable the AOC operations to be conducted or carried out safely (s. 28(1)(b)(v)); and

– the applicant has suitable procedures and practices to control the applicant and ensure that the AOC operations can be conducted or carried out safely (s. 28(1)(b)(vi)).

It is expressly provided by s. 28(2) that the financial position of the applicant for an AOC is one of the matters that CASA may take into account in forming a view for the purposes of s. 28(1)(a) above.

The meaning of the expression 'Relevant Period' in clauses 5(a)(i) and 5(b)(i) of the head lease underpins all of the considerations above. It was the subject of some debate before us. Northrop J. did not find it necessary to determine the meaning of that expression because, as mentioned earlier, it appeared to his Honour that all parties accepted that the relevant letters of 21 February 1995, containing requests by Aussie Airlines to Qantas for a sub-lease, were received by Qantas within the Relevant Period.

The facts that relate to the operation of the definition of 'Relevant Period', so far as the present case is concerned, are that Compass made requests pursuant to clause 5 of each of the head leases relating to the Melbourne, Sydney, Adelaide, Perth and Coolangatta terminals for access to 'Third Party Carrier Facilities' in or shortly after 1990; and sub-leases were subsequently granted of those facilities with respect to those terminals. Compass then commenced its operations as a domestic passenger airline on 1 December 1990. It operated until 20 December 1991. Soon thereafter, Southern Cross Holdings Limited entered the domestic aviation industry as a domestic passenger airline operator under the name Compass and continued to operate its airline business until March 1993. Thus it would appear from the evidence (though it is somewhat sparse on the point and does not appear to have been agitated as a factual issue before Northrop J.) that the third party carrier facilities were used by a third party (Compass and later Southern Cross) in sufficient time to avoid application of the definition of 'Relevant Period' described in sub-clause (aa) of clause 5(a)(i).

Whether sub-clause (bb) applies is a matter open to argument. There are two possible interpretations of that sub-clause.

The first is that if, at any time after 30 October 1995, third party carrier facilities have not been utilized by a sub-lessee for any continuous period of two years commencing after 30 October 1995, then sub-paragraph (bb) applies.

The alternative interpretation is that one takes 30 October 1995 as the benchmark and one looks to see if at any time thereafter (this would include, for example, 31 October 1995) there has been a continuous period of non-use for two years, whenever that period started, be it before or after 30 October 1995. If so, then sub-paragraph (bb) applies.

As at present advised, I am inclined to the view that the latter is the correct construction of the sub-paragraph. Accordingly, it would follow that, as Southern Cross ceased using the third party carrier facilities in March 1993, that would be the point of commencement for the calculation of the two year period, which would end in March 1995.

In the present case, the requests were made by Aussie Airlines in February 1995 and thus were made within 'the Relevant Period' for the purposes of sub-paragraph (bb); but no sub-lease was granted by March 1995. Nonetheless, in my view, once the machinery of request for the sub-leases was put in operation by the making of the requests by Aussie Airlines to Qantas within 'the Relevant Period', Qantas was not entitled to assert that 'the Relevant Period' ceased to operate in March 1995 because it had not by then granted the relevant sub-lease or sub-leases.

I emphasize that this is only a provisional view because the facts are sparse on the point and the parties do not appear to have addressed questions of fact which bear on this point as a live issue before Northrop J.

Incidentally, this illustrates the difficulty in curial proceedings of determining preliminary questions before all of the relevant factual matrix is known.

In my opinion Aussie Airlines answers the description of 'a new entrant to the domestic aviation industry' for the purposes of the definition of 'Third Party Carrier' in paragraph 5(b)(i) of the head leases. The primary Judge correctly answered question (b) in the affirmative.

The Declaration

As mentioned earlier, Northrop J. in addition to answering the two questions made a declaration in these terms:

'A declaration against all respondents that the Applicant, in making each of the requests referred to in paragraphs 20-22 (inclusive) of the Amended Statement of Claim herein was, a "new entrant to the domestic aviation industry" within the meaning of that expression as used in the definition of "third party carrier" in each of the Head Leases referred to in paragraphs 8 and 10 of the Amended
Statement of Claim'.

Counsel for Qantas submitted that his Honour should have confined himself to answering the two questions referred to him pursuant to Order 29 rule 2, and that he ought not, in all the circumstances, to have made the declaration. It was not submitted that the Court lacked power to make the declaration; nor could it have been so submitted because plainly the Court has the requisite power.

The background to the making of the declaration may be briefly stated. The amended application filed pursuant to leave granted by a judge of the Court on 15 September 1995 sought a declaration in the terms which Northrop J. ultimately made. In its cross-claim, Qantas also sought a declaration in the following terms:

'A declaration that Aussie Air is not and was not at any material time a "new entrant to the domestic aviation industry" within the meaning of, or for the purposes of, clause 5 of the Head Leases'.

So, the question of the making of a declaration whether Aussie Airlines is or is not 'a new entrant to the domestic aviation industry' was a live question at all times material to the proceeding before Northrop J., and it still is.

Further, I have examined the transcript of the proceeding before Northrop J., which establishes that counsel for Aussie Airlines sought a declaration in the terms of paragraph 2A of the amended application. Counsel for the FAC supported that stance, because, in counsel's own words:

'it would be of direct assistance and relevance to the Corporation as the lessor to have the Court proceed to the making of the declaration and that would guide the Corporation in its future action as lessor on the assumption that both (a) and (b) were answered in the affirmative'.

It does not appear that counsel for Qantas opposed the making of the declaration; but on a fair reading of the transcript I do not think it can be said that he supported it.

It has not been established that Northrop J. erred in exercising his discretion in favour of making the declaration. And so in my opinion, the declaration should stand.

This is, in my opinion, a proper case for the grant of leave to appeal.

I would make the following orders:

1. That leave to appeal from the judgment of Northrop J. given on 25 June 1996 be granted.

2. That the draft notice of appeal, being exhibit 'MMD6' to the affidavit of Mark Monteith Dobbie sworn on 2 July 1996, be deemed to be the notice of appeal.

3. That the appeal be dismissed.

4. That Qantas Airlines Limited pay the costs of Aussie Airlines Pty Limited and of Federal Airports Corporation of the motion for leave to appeal and of the appeal; otherwise there be no order for costs.

I certify that this and the preceding thirty-five (35) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.

Associate

Dated: 13 September 1996

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY No. VG 608 of 1995

GENERAL DIVISION

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN : AUSSIE AIRLINES PTY LTD

Applicant

AND : AUSTRALIAN AIRLINES LTD

First Respondent

QANTAS AIRLINES LIMITED

Second Respondent

FEDERAL AIRPORTS CORPORATION

Third Respondent

BETWEEN : AUSTRALIAN AIRLINES LIMITED

First Cross Claimant

QANTAS AIRLINES LIMITED

Second Cross Claimant

AND : AUSSIE AIRLINES PTY LTD

Cross Respondent

CORAM: LOCKHART, SPENDER and COOPER JJ

PLACE: SYDNEY

DATE: 13 SEPTEMBER 1996

REASONS FOR JUDGMENT

SPENDER J

I agree with the reasons for judgment of Lockhart J and the orders he proposes.

I certify that this page is a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date: 13 September 1996

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

No VG 608 of 1995

On appeal from a Judge of the Federal Court of Australia

BETWEEN: AUSSIE AIRLINES PTY LTD

Applicant

AND: AUSTRALIAN AIRLINES LIMITED

First Respondent

AND: QANTAS AIRLINES LIMITED

Second Respondent

AND: FEDERAL AIRPORTS CORPORATION

Third Respondent

BETWEEN: AUSTRALIAN AIRLINES LIMITED

First Cross-Claimant

AND: QANTAS AIRLINES LIMITED

Second Cross-Claimant

AND: AUSSIE AIRLINES PTY LTD

Cross-Respondent

CORAM: Lockhart, Spender and Cooper J

PLACE: Sydney (Heard in Brisbane)

DATE: 13 September 1996

REASONS FOR JUDGMENT

Cooper J

I have had the advantage of reading the reasons of Lockhart J in draft. I agree with the orders proposed by his Honour for the reasons given by him.

I certify that this page is a true copy of the reasons for judgment of his Honour Justice Cooper.

Date: 9 September 1996

Associate

Counsel for the Applicant: E N Magee QC with F McLeod

Solicitors for the Applicant: Oakley Thompson & Co

Counsel for the First and

Second Respondents: A H Goldberg QC with P J Booth

Solicitors for the First and

Second Respondents: Middletons Moore & Bevins

Counsel for the Third

Respondent: C Maxwell

Solicitors for the Third

Respondent: Mallesons Stephen Jacques

Date of hearing: 29 July 1996

Place of hearing: Brisbane

Date of judgment: 13 September 1996

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