FEDERAL COURT OF AUSTRALIA

Clarence City Council v Commonwealth of Australia [2019] FCA 1568

ORDERS

THE COURT ORDERS THAT:

1.    The proceedings be dismissed.

2.    The parties file submissions on costs, not exceeding 5 pages, within 7 days.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Introduction

1    As part of the privatisation of the nation’s airport in the 1990s, the Commonwealth entered into long term leases with airport operators, including with the operators of the Hobart and Launceston airports in Tasmania. The operator of the Hobart Airport was and is Hobart International Airport Pty Ltd (HIAPL) and the operator of the Launceston airport was and is Australia Pacific Airports (Launceston) Pty Ltd (APAL) (collectively, the lessees). The lessees are, respectively, the second respondent in each proceeding. The Commonwealth is the first respondent in each proceeding. The Hobart and Launceston local councils (the Clarence City Council and the Northern Midlands Council) (collectively, the councils) are the respective applicants. They seek declaratory relief with respect to the leases.

2    It was common ground that at the time of the privatisation project, the Commonwealth was concerned to create a “level playing field” between trading enterprises operating at the airports (which, being on Commonwealth land, are not amenable to council rates or State land tax on account of s 114 of the Constitution) with their actual or potential competitors, often referred to as “contestable” businesses, which are liable to pay such rates and taxes. That concern was an aspect of the principle of “competitive neutrality” that the Commonwealth, and the States and Territories, had agreed to in a “Competition Principles Agreement” dated 11 April 1995, one overarching purpose of which was “to achieve and maintain consistent and complementary competition laws and policies which [would] apply to all businesses in Australia regardless of ownership”.

3    It was also common ground that, consistently with that principle, the Commonwealth required the putative airport lessees to agree to the inclusion of a term in their leases requiring them to pay to the councils a “fictional” or “notional” equivalent of the rates that would have been payable if the airport sites were not situated on Commonwealth land.

4    HIAPL and APAL entered into lease agreements with the Commonwealth in respect of their respective airport sites. The HIAPL lease is dated 10 June 1998 and is for a term of 50 years, with a 49 year option to renew, commencing on 11 June 1998. The APAL lease is dated 28 May 1998; has a commencement date of 29 May 1998; and is for the same term. Both leases contain the following clause relating to council rates, headed “Ex Gratia payment in lieu of Rates and Land Tax” (cl 26.2(a)):

(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.

5    The council in each case is “the relevant Governmental Authority”. 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”.

6    The lessees and the councils have not entered into any agreement of the type contemplated by the last sentence of cl 26.2(a), but the lessees have made so-called ex gratia payments to the councils in accordance with independent valuations of the airport sites in each financial year since the commencement of the leases.

7    In these proceedings, the councils seek declaratory relief with respect to the proper construction of cl 26.2(a) and the councils’ liability to receive payments thereunder.

8    The trial of the proceedings dealt with the many issues. There was extensive evidence and lengthy cross examination about proper land valuation methodologies. And detailed oral and written submissions were made, among other matters, about 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.

9    On the question of construction, the councils contended that the whole of each of the airport sites is “rateable”, except for those areas that are occupied by the Commonwealth or a Commonwealth authority or comprise runways, taxiways, aprons, roads, vacant land, buffer zones and grassed verges. They say so because, they contend, “trading or financial operations are undertaken” within the meaning of cl 26.2(a) of the leases on all other areas of the airport sites – which include, by way of example only, areas in the terminals such as departure and arrival lounges, baggage claim areas, security facilities, bathrooms and waiting circulation areas.

10    The lessees and the Commonwealth disagree. They contend that the phrase “trading or financial operations” in cl 26.2(a) of their agreements is not to be construed as the councils would have it. They contend, among other things, that once regard is had to the principle of “competitive neutrality”, which was the essence of the rationale for cl 26.2(a), it is manifest that the phrase “trading or financial operations” was not intended to have application to “aeronautical services and facilities” (which the councils say are included in the rateable areas), because such services and facilities were not “contestable” – that is, the lessees could not enjoy a competitive advantage because there was no comparable business over which they could enjoy such an advantage.

11    The councils do not found their entitlement to declaratory relief on any legal rights under statute, nor do they contend that they enjoy the benefit of any contractual promise held on trust. They also disavow any reliance on the notion that, as a third party, they have an entitlement to sue on the leases (cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, at 122-124 (per Mason CJ and Wilson J)).

An anterior question – standing

12    The lessees (but not the Commonwealth) submit that the councils do not have standing to seek declaratory relief about the proper construction of cl 26.2(a) of the leases because:

(a)    the councils are not parties to the leases;

(b)    the leases confer no rights on the councils; and

(c)    the lessees and the Commonwealth agree that the lessees have complied, and will comply, with their obligations to pay the appropriately calculated quantum of the rate equivalent amounts under the leases.

13    The lessees submit that there is no relevant interest which the councils seek to vindicate through the proceedings, other than an asserted entitlement to a benefit under a contract to which it is not a party, and that the doctrine of privity means that the councils have no standing to bring the proceedings for declaratory relief.

14    For the reasons that follow, that submission must be accepted. Both proceedings will be dismissed.

The pleadings

15    By its Amended Originating Application dated 25 October 2018 in proceeding TAD 25 of 2018 (the Hobart proceeding), the Clarence City Council seeks the following declarations pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth):

(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.

16    The amended statement of claim in the Hobart proceeding relevantly pleads (omitting the pleaded facts and the relevant provisions of the leases set out above) as follows:

…

3    Equivalent Rates and Charges

3.1    Within the meaning of clause 26.2(a) of the Lease, the applicant pursuant to Part 9 of the Local Government Act 1993 has made the following relevant general rates, service rates, service charges and a fire service rate that would otherwise have been leviable or payable in relation to the land as follows based on the capital value of land:

[the rates and charges are then set out].

…

3.2A    The General Manager of the applicant sent to the second respondent a notice of the equivalent amount of the rates that would otherwise have been payable in respect of those parts of the airport site the subject of the obligation imposed upon the second respondent pursuant to clause 26.2 of the lease as follows (excluding arrears):

3.2B    Each of the amounts set out in each rates notice:

(a)    were calculated upon the capital value of the land as determined by the Valuer- General under the Valuation of Land Act 2001 and adjusted under the Local Government Act 1993;

(b)    were based on the valuation list provided by the Valuer-General to the applicant pursuant to s.45 of the Valuation of Land Act 2001; and

(c)    were therefore equivalent to the amounts which would have been payable if such rates were leviable and payable for those parts of the airport site within the meaning of clause 26.2 of the Lease.

3.2C    The second respondent has not made payments to the applicant as calculated by it.

3.3    From the commencement of the financial year 2014/2015 the second respondent has caused the following amounts to be paid to the applicant based on its interpretation of the areas required to be included in the calculation of the ex-gratia payment pursuant to clause 26.2 of the Lease and or based on its interpretation of the application of that clause to the general rate and fire service rates determined by the applicant:

     Year        Amount

     2014/2015    $351,738.32

     2015/2016    $341,397.73

     2016/2017    $349,586.89

     2017/2018    $349,519.09

3.4    In making each of the payments as above, the second named respondent has not advised the applicant:

(a)    As to the basis for the calculation undertaken by it in order to determine the amounts paid;

(b)    As to which parts of the Airport Site it has included in its calculations; and

(c)    As to which parts of the Airport Site it has excluded from its calculations, and the basis for each exclusion.

4    The dispute

4.1    The applicant contends, and each of the respondents’ [sic] dispute, that the amounts paid by the second respondent to it in each of the financial years 2014/2015 to 2017/2018 inclusive have not been determined and calculated in accordance with clause 26.2(a) of the Lease in that:

(a)    parts of the Airport Site which are or were sub-Leased to tenants have been wrongly excluded; and/or

(b)    parts of the Airport Site on which trading or financial operations are undertaken including but not limited to retail outlets and concessions, car parks and valet car parks but excluding runways, taxiways, aprons, roads, vacant land, buffer zones, grass verges and land identified in a relevant airport master plan for these purposes have not been included

where, in each case, these areas were not occupied by the Commonwealth or an authority constituted under Commonwealth law that is excluded from paying rates by Commonwealth Policy or law.

4.2    Further, the applicant contends that each of the respondents has wrongly interpreted clause 26.2(a) of the Lease as follows:

(a)    by applying to it the Competitive Neutrality Policy and Principles as identified in the Competition Principles Agreement dated 11 April 1995 between the first respondent and each State and Territory of Australia so as to restrict the ex-gratia payment calculation to areas of the airport site where commercial operations are conducted and which do not directly support aviation operations, such as common user terminals, check in facilities, security areas, baggage collection and handling areas, departure gates, queuing areas and general circulation areas; and

(b)    by applying to it the definition of ‘aeronautical services and facilities’ at Regulation 7.02A of the Airports Regulations 1997, in order to exclude from the ex-gratia calculation each of the aircraft related services and facilities and passenger related services and facilities there defined

where, in each case, these areas were not occupied by the Commonwealth or an authority constituted under Commonwealth law that is excluded from paying rates by Commonwealth Policy or law.

4.2A    Further, the applicant contends, and the respondents dispute, that upon a proper construction of clause 26.2 of the Lease the equivalent amount that the second respondent is obliged to pay:

(a)    is to be calculated in accordance with the values determined by the Valuer-General pursuant to the Valuation of Land Act 2001, for those parts of the airport site the subject of clause 26.2(a) of the lease; and

   (b)    as notified to it by the applicant in a rates notice for each rating year.

4.3    The applicant and the second respondent have not entered into an agreement for the making of payments within the meaning of clause 26.2(a) of the Lease.

5    The factual detail of the dispute

5.1    The applicant contends that each of the areas identified in attachment A to this statement of claim comprise parts of the Airport Site which are required to be included in the calculation of the payment pursuant to clause 26.2(a) of the Lease but which have been wrongly omitted or excluded from that calculation in each of the financial years 2014/2015 to 2017/2018 inclusive in that those areas:

   (a)    where indicated, are sub-Leased to tenants; and/or

(b)    where indicated, are areas on which trading or financial operations are undertaken and which are not subject to the exclusions expressed at clause 26.2(a) of the Lease.

5.2    The respondents dispute, in whole or in part, that such areas are required to be included in the calculation.

5.2A    The applicant further contends that the amounts paid by the second respondent to it have not been calculated in accordance with the capital value of those portions of the airport site the subject of clause 26.2(a) of the Lease as determined by the Valuer-General pursuant to the Valuation of Land Act 2001 and as notified by it in a rates notice for each rating year.

5.3    If the applicant is correct in its construction of the areas required to be included in the calculation and the methodology to be applied, then it calculates the difference between the amount payable and the amounts paid in each year … [to be a total of $1,755,034.38].

5.4    The Respondents dispute the calculations of the Applicant.

17    The amended statement of claim in proceeding TAD 27 of 2018 (the Launceston proceeding) is in relevantly identical terms.

18    The amount in dispute in the Launceston proceeding for the relevant financial years is $1,797,752.

19    The respondents filed amended defences, but it is unnecessary to refer to them in any detail, because the facts are largely undisputed. The defences of the lessees also include a plea that the councils have no standing to seek the claimed declaratory relief.

20    Each council filed a reply by which, among other things, each of them contends that it has standing because the circumstances are such that it “has a real interest in the subject matter of the declarations that it seeks, being the economic advantage that will accrue to it, depending upon the meaning of the provisions of the Lease that are in issue in this proceeding”.

21    The lessees also plead by way of defence certain matters going to whether declaratory relief should, as a matter of discretion, be granted.

22    In the Hobart proceeding, HIAPL also put on a cross-claim alleging that it had reached agreement with the Commonwealth as to the basis upon which payments had been and are to be made under cl 26.2(a), which had been relevantly satisfied, and that any cause of action that the Commonwealth may have had against HIAPL under that clause of the lease from the financial year ended 30 June 2014 onwards had been discharged by accord and satisfaction.

the Commonwealth and the lessees are not in dispute

23    The Commonwealth and the lessees are not in dispute about the operation of cl 26.2(a) of the lease or about the lessees’ compliance with cl 26.2(a). On the contrary, the Commonwealth agrees that the lessees have paid the appropriately calculated amount of equivalent rates for the financial years ended 30 June 2014, 2015 and 2016, and provided that they pay rates in the future on the basis of a valuation and methodology consistent with the last valuation, which excludes so-called “aeronautical services and facilities” (see [10] above), then they will be acting in accordance with the terms of cl 26.2(a) of the leases.

24    The councils accept that the Commonwealth and the lessees agree:

(1)    about the proper construction of cl 26.2 (a) of the leases;

(2)    that the amount of rate equivalents paid in the specific financial years referred to in the amended statements of claim were properly calculated in accordance with that clause; and

(3)    on the basis of a valuation and methodology for the calculation of the rate equivalent payments to be made for the duration of the leases.

25    They could hardly do otherwise in the face of the correspondence between the Commonwealth and the lessees about their consensus as to the quantum payable in past years, and about the basis upon which the amounts payable would be calculated over the many decades that the leases have to run.

26    I will now set out the relevant parts of the correspondence in that regard, dealing first with the Hobart proceeding.

27    By letter dated 3 June 2016, the Commonwealth told HIAPL that Herron Todd White (HTW), the firm of valuers appointed by the Commonwealth to value the Hobart airport site, 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 HIAPL for payments in lieu of rates”; and that “… as the Department understands HIAPL has made payment to [Clarence City Council] exceeding the amounts determined in the report, it considers HIAPL to have met its lease obligation for the years addressed by the valuation” (that is the financial years ending 30 June 2014, 2015 and 2016).

28    By letter dated 5 May 2017, the Commonwealth also told HIAPL that “[g]oing forward”, absent any formal agreement between the Clarence City Council and HIAPL, it would “consider HIAPL compliant” with the obligation in cl 26.2(a) “should it make payments in lieu of rates to [Clarence City Council] on the basis of a valuation and methodology consistent with” an HTW valuation dated 4 April 2017.

29    HIAPL then engaged HTW to value the Hobart airport site and determine the amounts payable by HIAPL to the Clarence City Council for the financial years ending 30 June 2017 and 2018, applying the same methodology used in the April 2017 valuation. (HIAPL subsequently paid the Clarence City Council in accordance with that further valuation).

30    By its letter of 5 May 2017, the Commonwealth told HIAPL that the Commonwealth was confident that “the revised draft [HTW] report correctly interprets, and treats all areas of the airport in a manner consistent with, the terms of cl 26.2 of the airport lease …” and that “[u]n-subleased areas which are used for aeronautical purposes are considered by the Department not to be areas on which ‘trading or financial operations’ are undertaken, and therefore not subject to the ex-gratia rates obligation”.

31    The correspondence in relation to the Launceston airport is to relevantly identical effect, as follows.

32    By letter dated 19 March 2016, the Commonwealth told APAL that its view was that the first HTW valuation of the Launceston site “accords with the terms of the lease and the rates determination accurately reflects the obligation imposed on [APAL] for payments in lieu of rates”. The Commonwealth also told APAL that should it “make payment to [the Northern Midlands Council] in line with the report, the Department [would] consider APAL to have met its lease obligation for the years addressed in the report”, i.e. the financial years ended 30 June 2014, 2015 and 2016. (APAL subsequently paid the Northern Midlands Council accordingly).

33    By email dated 24 August 2016, the Commonwealth also told APAL 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”.

34    By letter dated 5 May 2017, the Commonwealth told APAL that “[g]oing forward”, absent any formal agreement between the council and APAL, it would “regard APAL as compliant” with the obligation in cl 26.2 if it “makes payments in lieu of rates to [the Northern Midlands Council] on the basis of a valuation and methodology consistent with” the second HTW valuation for the financial years ending 30 June 2017 and 2018. (Again, APAL paid the Northern Midlands Council accordingly).

The councils’ submissions on standing

35    The councils concede that they are not privies to the leases. And as also noted above, they assert no statutory entitlement. And they do not claim that the benefit of a contractual promise is held on trust for them or that, as a third party, they otherwise have an entitlement to sue on the leases.

36    The councils contend, nonetheless, that the want of a legal right or a cause of action is not a bar to the grant of declaratory relief in this case because relief is sought in respect of a real question that is not abstract or hypothetical, citing Ashmere Co Pty Ltd v Beekink [2007] FCA 1421; (2007) 244 ALR 534 at 543, [36], per French J (affirmed on appeal in Employers Reinsurance Corporation v Ashmere Cove Pty Ltd (2008) 166 FCR 398, per Heerey, Sackville and Siopis JJ) and Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406 at 414-415, per Lockhart J (Spender and Cooper JJ agreeing).

37    They further contend that it is sufficient to found their entitlement to declaratory relief that they may derive some benefit or advantage from the declaration over and above any benefit or advantage that might be derived by an ordinary citizen, citing CGU Insurance Ltd v Blakeley (2016) 259 CLR 339 at 372, [99], per Nettle J. They say that it does not matter that the contracting parties are not in dispute either as to the meaning of the clause or its effect, because the applicants are not relevantly “outsiders”, citing CGU Insurance Ltd at 361, [57] per French CJ, Kiefel, Bell and Keane JJ, and at 369-371, [91], [92] and [96], per Nettle J. The councils say that they are directly and financially concerned in the correct interpretation of the clause and its application to the various areas at each airport, and that they therefore have standing to seek the declaratory relief as framed.

The Commonwealth’s submissions on standing

38    The Commonwealth submitted, without elaboration, that the councils have standing because of their “financial interest in receiving from [the lessees] … payments of a particular quantum …”

The lessees’ submissions on standing

39    The lessees submit that the councils’ reliance on the decision of the High Court in CGU Insurance Ltd is misplaced, because the claim for declaratory relief in that case was based upon an enforceable legal right conferred on the liquidators by statute, including the contingent right under s 562 of the Corporations Act 2001 (Cth) to be paid in priority out of the proceeds of the relevant insurance policy in respect of the insolvent defendants’ liability.

40    By contrast, the lessees submit that the councils’ claims are based solely upon leases to which they are not a party, and which confer no legal rights upon them, under statute, by a trust or otherwise. The lessees further submit that, “[u]nlike the proceedings in CGU”, the councils’ claims do therefore depend entirely on “incursion upon principles of contract law [and] privity of contract”, and that there is no relevant interest which the councils seek to vindicate other than an asserted entitlement to a benefit under leases to which it is not a party. That right to enforce cl 26.2(a), the lessees insist, lies with, and only with, the Commonwealth.

41    The lessees contend that the councils are therefore “in every sense” an “outsider” to the leases and that the councils’ financial interest in the receipt of “ex gratia” payments from the lessees does not constitute an “exceptional circumstance” sufficient to displace the ordinary rule and to circumvent its lack of privity. They also say that the specific mechanism by which the leases contemplated that the councils might (but were not) given enforceable rights against the lessees in respect of such payments was by way of an agreement as between the lessees and the council (see cl 26.2(a), by which the lessees “must use all reasonable endeavours to enter into an agreement” with the councils), and not otherwise.

Consideration of standing issue

42    As Deane J said in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 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. His Honour’s consideration of CGU’s privity submission is as follows:

92.    …To a large extent, [the submission] centred on an observation of Ormiston JA in C E Heath [[1997] 2 VR 256 at 270] 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 The Insurance Corporation of Ireland Plc [[1989] 2 Lloyd’s Rep 298.]. 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. The decision was largely based on the speeches of Lord Wilberforce and Lord Diplock in Gouriet v Union of Post Office Workers [[1978] AC 435].

93.    In Gouriet, Lord Wilberforce said that declaratory relief cannot be granted unless [[1978] AC 435 at 483]:

the plaintiff, in proper proceedings, in which there is a dispute between the plaintiff and the defendant concerning their legal respective rights or liabilities either asserts a legal right which is denied or threatened, or claims immunity from some claim of the defendant against him or claims that the defendant is infringing or threatens to infringe some public right so as to inflict special damage on the plaintiff.

94.    Lord Diplock stated that [[1978] AC 435 at 501]:

The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence or nature of the right claimed. So for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event.

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]” [[1989] 2 Lloyd’s Rep 298 at 309]. The essence of the decision is encapsulated in May LJ’s statement that [[1989] 2 Lloyd’s Rep 298 at 309]:

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 [See, e.g., Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43 at 67 per Fullagar J; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 at 478 per Barwick CJ.] 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.

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.

Disposition

63    Both proceedings must therefore be dismissed. I will also make directions for the filing of short submissions on costs.

Associate:

Dated:    24 September 2019