Councils Take Airport “Matter” into their Own Hands

Andrew Tarnowskyj

In the recent decision Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5, the High Court considered the circumstances in which an outsider to a contract could seek and obtain declaratory relief as to the meaning and effect of a contract between contracting parties. A majority of the High Court held that the answer to that question turned on whether there was a “matter” for the purposes of Chapter III of the Constitution and, in turn, whether the outsider had a “real” or “sufficient” interest in the relief sought. While the decision represents a significant encroachment upon the doctrine of privity of contract, questions remain as to the nature of the interest that an applicant must have before that interest can be described as a “real” or “sufficient” interest.

Background

During the 1990s, the Commonwealth entered into a number of long-term leases with airport operators as part of a project to privatise Australia’s federal airports. Two such leases (Leases) were entered into with the operators of the Hobart Airport and Launceston Airport (Airports). The Commonwealth recognised that a competitive imbalance arose between the operators of newly privatised airports and their actual or potential competitors from the fact that the newly privatised airports were situated on Commonwealth land and, therefore, were not amenable to council rates or State land tax because s 114 of the Constitution prohibits States from imposing “any tax on property of any kind belonging to the Commonwealth”. To address the imbalance, and in order to implement the principle of competitive neutrality, the Commonwealth included in the Leases a term requiring the Airports to pay to the relevant local council a notional equivalent to the rates that would have been payable if the airport sites were not on Commonwealth land. Accordingly, clause 26.2(a) of the Leases provided that, in lieu of paying rates, Hobart Airport and Launceston Airport were to pay Clarence City Council and Northern Midlands Council (Councils) respectively an amount equivalent to that which would have been payable had the airports not been on Commonwealth land.

A dispute arose between the Councils and the Airports regarding the proper construction of clause 26.2(a) and the resulting notional rates payable to the Councils. Importantly, there was no dispute as between the Airports and the Commonwealth regarding the interpretation of the clause. The Councils sought declaratory relief as to the proper construction of clause 26.2(a) and the Airports’ obligations to make payments. At first instance, the primary judge dismissed the applications on the basis that the Councils lacked standing. The Full Court of the Federal Court allowed the Councils’ appeals, holding that they had standing as their claims raised a “matter” for the purposes of Chapter III of the Constitution capable of determination by a court exercising the judicial power of the Commonwealth. The Airports appealed to the High Court.

The High Court’s decision

The Constitutional requirements of a “matter”

The question at the heart of the appeals was whether the dispute involved a “matter” for the purposes of Chapter III of the Constitution. As explained by the plurality (Kiefel CJ, Keane and Gordon JJ) at [26] a “matter” has two elements: the subject matter itself, as defined by reference to the heads of jurisdiction set out in Chapter III, and the concrete or adequate adversarial nature of the dispute sufficient to give rise to a justiciable controversy (see also Gageler and Gleeson JJ at [46]-[47]).

As to the first element, it was held that the Councils’ claims for declaratory relief satisfied the subject matter requirement as the rights and obligations of the Commonwealth and the Airports under the Leases owed their existence to the Airports (Transitional) Act 1996 (Cth), a Commonwealth law (Kiefel CJ, Keane and Gordon JJ at [27]; Gageler and Gleeson JJ at [50]).

As to the second element, whether there was a justiciable controversy, the plurality considered that in these appeals (but not in all cases) the answer to the question turned on whether the Councils had standing to have the dispute determined and to seek the declaratory relief sought. Their Honours explained (at [31]):

The question in these appeals can be approached in this way because, in federal jurisdiction, ‘questions of ‘standing’ to seek equitable remedies such as those of declaration and injunction, [when they arise,] are subsumed within the constitutional requirement of a ‘matter’’. The ‘significance of standing to the existence of a matter for the purposes of Ch III’ is, in essence, that there is no ‘matter’ ‘unless there is a remedy available at the suit of the person instituting the proceedings in question’. While ‘[a] negative answer to the question – is there a matter before the Court in which it has federal jurisdiction? – would render the question of the plaintiff’s standing moot’, ‘an affirmative answer to the question – is there a matter? – may not be sufficient to answer the question whether the plaintiff has standing’.” [Footnotes omitted.]

(See also Gageler and Gleeson JJ at [48]-[49], [54].)

As to the interaction between the doctrine of privity of contract and standing to seek a declaration, the plurality explained (at [35]) that privity of contract is a relevant factor in determining whether an outsider to a contract has standing and that in exceptional circumstances an outsider seeking declaratory relief may, for reasons other than having legally enforceable rights, have a “sufficient” or “real” interest to seek declaratory relief as to the meaning and effect of a contract between contracting parties.

Nature of the interest that an applicant for a declaration must have before that interest can be described as a “real” or “sufficient” interest

There are significant differences in the judgment of the plurality and the judgment of Gageler and Gleeson JJ, and hence no clear ratio, regarding the nature of the interest that an applicant for a declaration must have before that interest can be described as a “real” or “sufficient” interest.

The plurality found that the Councils had a sufficient and real interest in seeking declaratory relief about the proper construction of the Leases due to the combination of three circumstances identified at [38]-[40] of the judgment. Those circumstances were:

  1. the proper construction of the Leases was of “real practical importance” to the Councils (at [38]);
  2. the Councils had a “real commercial interest” in the relief (at [39]); and
  3. the Councils’ “interests” in future negotiations would be advanced if their construction was upheld (at [40]).

The plurality did not indicate what the nature of the Councils’ interest in those future negotiations was, but it is difficult to see how those interests could be anything other than financial or commercial. Their Honours went on to note, in obiter at [41], that their reasons should not be read as suggesting that possessing a mere commercial interest in obtaining declaratory relief about the meaning and effect of a contract to which an applicant for declaratory relief is not a party, on its own, would give rise to a sufficient or real interest. There is nothing in the judgment of the plurality, however, to suggest that the three circumstances identified at [38]-[40] must exist in every case before it can be said that a person has standing to seek declaratory relief. Indeed, such a conclusion would be inconsistent with the plurality’s endorsement, at [32], [34]-[35] and [40], of Heydon J’s judgment in Edwards v Santos Ltd (2011) 242 CLR 421. This is because in Santos it was a single factor – advancing the plaintiffs’ interests in negotiations – that gave the plaintiffs a sufficient interest to seek declaratory relief.[1]

Gageler and Gleeson JJ emphasised the need to approach the question of standing and the sufficiency of an applicant’s interest in seeking declaratory relief on a case-by-case basis (at [66]), eschewing any bright-line rule governing when a person who is not a party to a contract has standing to seek a declaration about its meaning and effect (at [70]). Their Honours characterised the interests of the Councils differently from the plurality, describing their interest more as “fiscal”, than “commercial”, and more as “governmental”, than “practical” (at [74]). Nevertheless, they then held (at [76]) that the fiscal (commercial) or governmental (practical) interest of each Council in obtaining or being refused the declaration was a sufficient interest to establish their standing to seek the declaration.

Accordingly, while the plurality considered that the sufficient interest arose from three factors in combination (commercial interest, practical importance and future negotiating position), Gageler and Gleeson JJ, in contrast, regarded one factor (either fiscal/commercial or governmental/practical) on its own as sufficient to give the Councils standing. In addition, their Honours made no mention of the plurality’s third factor, future negotiating position. It follows that there is no majority view as to why the Councils had a sufficient interest to seek the declaratory relief. On the view of the plurality, commercial interest (or practical importance) on its own would not give rise to a sufficient interest. In contrast, on the view of Gageler and Gleeson JJ it would.

The minority judgment

In their dissenting judgment, Edelman and Stewart JJ accepted as a basic rule 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.[2] According to their Honours, the rationale for that rule is that: (i) a declaration of right must be concerned with the “right” of the party seeking the declaration, separate from any rights created by the declaration; and (ii) the authority to declare private rights does not generally extend to the declaration of private rights of others merely because a plaintiff might have an interest in how others exercise their rights (at [121]). Edelman and Stewart JJ held that while the Councils unquestionably had a real commercial interest in seeking declarations as to the meaning of the Leases, they were unable to point to any sufficient reason to undermine the basic rule. To recognise their interests as sufficient for a declaration would, according to their Honours, undermine the very basis of the rule by which courts granting a declaration of a private right do so at the instance of a person who is a party to that jural relationship, not a stranger to it (at [123]).

Observations

Where a court is exercising federal jurisdiction, questions of standing to seek and obtain equitable remedies are subsumed within the requirements of a “matter”. Applicants are unlikely to face any real difficulty establishing the first requirement of a “matter” – the subject matter itself – which in most cases will be apparent on the face of the proceeding. As to the second requirement – whether there is a justiciable controversy – in the case of declaratory relief (but not all cases) the answer to that question turns on whether the applicant has a “real” or “sufficient” interest in the relief sought. Given that the precise nature of what amounts to a “real” or “sufficient” interest remains unsettled, applicants would do well to anchor their interest in the relief sought to each commercial and/or practical consideration applicable.

[1] See, Edwards v Santos Ltd (2011) 242 CLR 421, [37].

[2] At [121]. See Meadows Indemnity Co Ltd v The Insurance Corporation of Ireland Plc [1989] 2 Lloyd’s Rep 298, 309.

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