Hobart International Airport Pty Ltd v Clarence City Council & Anor; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council & Anor

[2021] HCATrans 26

[2021] HCATrans 026

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Hobart  No H4 of 2020

B e t w e e n -

HOBART INTERNATIONAL AIRPORT PTY LTD

Applicant

and

CLARENCE CITY COUNCIL

First Respondent

COMMONWEALTH OF AUSTRALIA

Second Respondent

Office of the Registry
  Hobart  No H5 of 2020

B e t w e e n -

AUSTRALIA PACIFIC AIRPORTS (LAUNCESTON) PTY LTD (ACN 081 578 903)

Applicant

and

NORTHERN MIDLANDS COUNCIL

First Respondent

COMMONWEALTH OF AUSTRALIA

Second Respondent

Applications for special leave to appeal

KEANE J
STEWARD J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 12 FEBRUARY 2021, AT 11.09 AM

Copyright in the High Court of Australia

____________________

MS K.A. STERN, SC:   May it please the Court, I appear with MS L.A. COLEMAN, for the applicants.  (instructed by Corrs Chambers Westgarth, Tierney Law and King & Wood Mallesons)

MR S.B. McELWAINE, SC:   I appear with MS K. CUTHBERTSON, for the Councils.  (instructed by Shaun McElwaine & Associates)

MR C.L LENEHAN, SC:   May it please the Court, I appear with MS K.E. FOLEY, for the second respondent in each matter.  (instructed by the Australian Government Solicitor)

KEANE J:   Yes, Ms Stern.

MS STERN:   Your Honours, as I indicated, we say that the applications before the Court raise significant matters of principle, namely as to the ambit and role of privity of contract in Australian law, and as to the proper approach to standing, and the constitutional question of justiciability in a private law context.  And further, we say that the judgment of the Full Court of the Federal Court leads to significant inroads into the freedom of contracting parties to regulate their own behaviour, and also introduces considerable uncertainty into the threshold for third parties seeking declarations relating to contracts.

Your Honours, we advance essentially three propositions.  The first proposition is that there is no basis in authority, principle, or logic, for the Full Court’s finding that the doctrine of privity of contract has no application to the question of standing where the plaintiff seeks relief by way of a declaration upon a contract to which the plaintiff is not a party.  And we say, in so finding, the Full Court erred.

If I could invite your Honours to the application book to see what we say are the starkest examples of the errors on the part of the Full Court.  If I could ask the Court to go first to the application book page 116, at paragraph 90, and your Honours will see there, the first four lines of that paragraph:

The restriction on a third party from suing “on” or “upon” a contract under the general rule instead refers to the direct enforcement of obligations arising under the contract pursuant to a right of action derived from that contractual relationship.

And the Court will see a further illustration of that error at application book 129, paragraph 128 of the judgment of the Full Court:

The key enquiry in the present case is identifying in what circumstances a third party to a contract is entitled to seek declaratory relief ‑

And the response was:

That question is not to be determined by reference to, or constrained by, the common law doctrine of privity of contract.

And, your Honours, we say that is the first time that an Australian court has made such a finding, namely, limiting the ambit of privity of contract in that way, and we say that the conclusion of the Full Court in that regard is erroneous.

In that context, if I could invite your Honours to go to the application book page 91 where, at paragraph 34, your Honours will see the terms of the declarations sought by the Councils in this case, and your Honours will see that plainly these are declarations seeking to take the benefit of a contract to which the Councils are not a party, and seeking, by binding declaration of right, to enforce the contract to which it is not a party. 

Your Honours, in those circumstances, we say the distinction drawn by the Full Court is not supported by logic or principle, since, in our submission, there is no reason and logic why a third party could be entitled to seek a binding declaration of right in those terms, in circumstances where it is not a party to that contract, and where there is well‑established authority from this Court that the principle or privity of contract precludes the third party from taking the benefit of a contract, seeking to enforce a contract or seeking a remedy based upon a contract. 

KEANE J:   That might be so, as a matter of ‑ ‑ ‑ 

MS STERN:   Your Honours, I am afraid I have difficulty hearing, so I wonder if I could ask your Honours to speak up a little bit. 

KEANE J:   That might be so, as a matter of logic, but, as we know, not everything is determined by matters of logic.  As a matter of convenience, one can recognise, can one, that there is a dispute, a controversy, between your client and the Council and that the Council has an interest in the resolution of that dispute sufficient to give rise to what we might call a matter.

MS STERN:   Your Honours, we do not accept that and there are a number of reasons for that.  The first is that there is no legal right of the Council or obligation owed to the Council and that is an immediate and obvious distinction from a range of cases that were referred to by the Full Court but, most particularly, CGU v Blakeley, where the right of the claimants – or plaintiffs – in those cases was, in essence, a statutory right under section 562 of the Corporations Act, such that the declaratory relief had significance for a legal right.  Now, by contrast here there is absolutely no legal right that the Councils can invoke.  They are merely in the position of – I think it was the ‑ ‑ ‑

STEWARD J:   Would you characterise them as the Councils being in a position of having a windfall gain by reason of Commonwealth policy when privatising airports in the 1990s?

MS STERN:   Your Honour, quite, and Full Court judgment refers to the justification for those provisions in the lease being based upon competitive neutrality.

STEWARD J:   Correct.

MS STERN:   I know your Honour has looked at that in the Essendon Airports Case.

STEWARD J:   Correct.

MS STERN:   But, your Honours, I was going to say, analytically, the Council’s ‑ ‑ ‑

STEWARD J:   So, your position is why would someone who has a windful gain – why would they have standing to intrude upon the bargain between two individuals?

MS STERN:   Your Honour, that is precisely the basis upon which we advance the application and say that the Full Court erred.  But, in addition, if one goes back to cases like Tweddle v Atkinson where they had the parents and parent‑in‑law promising to provide money to the groom.  Analytically, the Councils are in the identical position.  We would say that, in those circumstances, there is no possible right.

Your Honour Justice Keane raised the question of a justiciable controversy.  Again, there are clear distinctions in this case and a range of other cases that have been referred to by the Full Court in the insurance context where there was, unquestionably, a controversy between the insured and the insurers and between the claimant and the insured.  The analysis of the Court – which was picked up and adopted in CGU – is that that is the justiciable controversy and the claim for a declaration fits within that.

Now, here, as was expressly referred to by both his Honour the primary judge and the Full Court, there was no disagreement, indeed the Commonwealth had entered into the fray, as it were, proposed a resolution, and specifically told the airport lessees that the Commonwealth would regard them as compliant with their obligations under the lease.

So again, one is in a dramatically different situation to the situation where there is an insurer who has denied liability, and your Honours may have seen the significance attached to that in both the plurality judgment and the judgment of Justice Nettle in CGU v Blakeley where the emphasis or the finding as to a justiciable controversy there was based both upon the denial of liability and the statutory rights under section 562 of the Corporations Act, and section 117 of the Bankruptcy Act.

STEWARD J:   Ms Stern, may I ask, in this case, is there the same clause requiring a payment in lieu of land tax to go back to the Commonwealth?

MS STERN:   I am sorry, your Honour, I did not hear the start of that – I do apologise. 

STEWARD J:   That is quite all right, I am sorry.  In your case, is there a provision for a payment to be made in lieu of land tax to go back to the Commonwealth, rather than to the State?  In Essendon Airport there was such a clause.

MS STERN:   Your Honours, perhaps it would be useful if I draw your Honours’ attention to where the provisions of the lease are extracted in the judgment of the Full Court.  That is at application book pages 87 to 88, and your Honours will see at paragraphs 19 and 20 the relevant provisions of the lease.  And your Honour Justice Steward will note in response to the question at subparagraph (b) at page 88 ‑ ‑ ‑

STEWARD J:   It is to the Commonwealth.

MS STERN:   ‑ ‑ ‑ there is the identical provisions in relation to land tax that your Honour considered in the Essendon Airport Case.  The position is slightly different in relation to rates, where they are to be ‑ ‑ ‑

STEWARD J:   Well, it is different for rates, because the payment goes to a third party ‑ ‑ ‑

MS STERN:   Yes.

STEWARD J:   ‑ ‑ ‑ whereas with land tax, it goes back to the Commonwealth.  But, in a sense, that might highlight the windfall nature of the payments that the local councils receive.

MS STERN:   Your Honour, absolutely.  And we say, analytically, that is of significance, and underscores the significance of what we would say is the error of the Full Court in finding, firstly, that privity has no relevance.  But, secondly, in finding – and we have articulated it separately in our application ‑ that there is a justiciable controversy in circumstances where there is no dispute whatsoever between the parties to the contract and the only possible ‑ ‑ ‑

STEWARD J:   Do you say that – is it part of your case that the Full Court perhaps misunderstood what you say are the rules relating to declaratory relief, namely, that they can be coercive as well?

MS STERN:   Your Honour, yes, we do, and that underscores the whole analysis, really, of the Full Court as to why the ambit of privity would not extend to declaratory relief.  But, of course, that finding of the Full Court is clearly inconsistent with the analysis of this Court in CGU v Blakeley, to the effect that – and that was a case about a declaration being sought where both the plurality judgment and the judgment of Justice Nettle had regard to the principles of privity of contract.

If the Full Court was right, that privity of contract has no relevance in a circumstance where the relief sought is declaratory, then that analysis simply would make no sense because the question of privity would have had no relevance.  And the relevant paragraphs are paragraphs 67 in the plurality in CGU, and 92 to 96 in the judgment of Justice Nettle.

The other submission we make in support of this first proposition is that whilst it is, of course, right that there are some statements of this Court that refer to privity of contract in terms of a right to sue on the contract, there are equally a range of statements that we referred to in our application for special leave, taking the benefit of a contract, enforcing a contract, having a remedy.  And, plainly, a declaratory relief is seeking, by way of binding declaration of right, to take the benefit of a contract, to enforce the contract, and to have a remedy on the contract.

STEWARD J: Would you say that the Full Court’s decision opens the doors so that any third party to a contract who otherwise has standing for the purposes of section 21 of the Federal Court of Australia Act, would always be able to, as you would put it, intrude into the bargain?

MS STERN:   Your Honour, yes.  That your Honour has raised otherwise have standing, which, in a sense, is that circularity in the Full Court’s reasoning, and one of the real difficulties in the Full Court’s reasoning is that – and it can really be seen if I invite your Honours to go to page 137 of the application book, paragraph 149, and your Honours will see there that the finding of the Full Court, the second line down:

the third party will ordinarily possess a requisite interest in such relief where the award of the relief would substantially aid the party in the course of future legal or commercial negotiations ‑

It really could not be broader.  And, again, if I could invite your Honours to look about six lines above that, on the third line of that page, it said:

In that context, it will be relevant to assess whether the applicants for relief have an interest that is greater than that of other members of the public ‑

And whereas that approach to standing emanates from a public law context, which we say is quite different because one is looking at an interest that the populace has in the proper administration of the constitutional administrative law of the land, that is completely different to the position where one is looking at contractual rights, whereby one is in the sphere of private rights, and the long tradition of contractual freedom.

So, in response to your Honour Justice Steward’s question, it opens the doors in a dramatic way, because even your Honour referred to subject to standing, but it is not really clear what remains of standing given the ambit of what the Full Court has found.  And we say these are the points of

principle that are raised, but, moreover, this is clearly an appropriate vehicle given, firstly, the interrelationship between the various errors made ‑ which, we would say, go to prospects of success ‑ but, moreover, those errors where clearly of significance to the ultimate analysis on the facts of the case and there would, in any view, be considerable potential for this to be applied further. 

We are aware of one case in which the judgment deals with an argument based upon the breadth of the entitlement ‑ in this case, from the Victorian Supreme Court ‑ but the potential uncertainty in seeking to apply this, we say, is a further reason for the grant of special leave.

KEANE J:   Ms Stern, I think the Court would be assisted at this point if we hear from Mr McElwaine and Mr Lenehan.

MS STERN:   I am grateful, your Honours.  If the Court pleases.

KEANE J:   Mr McElwaine.

MR McELWAINE:   May it please.  May I proceed at once to this question of windfall gain and remind your Honours of what clause 26.2 at ab page 87 provides for.  This is not, in our submission, a case that raises the general point of principle as phrased by our friend because of the particular circumstances, that is, this is a case where the contracting parties did not reserve for themselves the mechanism to apply the equivalent amount.  Rather, they were content to assume that the calculation would be undertaken by the non‑party and that once that calculation was undertaken and the outcome notified the contractual obligation of the lessees would be engaged to promptly make the payment. 

That is what makes this case different from the general principle that has been articulated by our friends, that is, the Councils are not invaders, they are invitees, they are participants in the contractual mechanism, and what they sought to do at bottom in this case is to seek a declaration from the Court as to, well, please tell us how the calculation is to be undertaken.  That was subparagraph (d) of the declaration sought.  If we are wrong about (a), (b) and (c), then (d), please tell us what to do because a dispute has arisen.

From 1998 through to 2013, this contractual mechanism worked in a perfectly satisfactory way.  Disputes arose due to and in consequence of a revaluation which had the commercial effect of substantially increasing the equivalent amounts.  Then, there was protracted disputes between the parties.

KEANE J:   Ordinarily, though, in a case, for example, of a share sale agreement at a valuation by a third party, ordinarily the valuer would not have standing ‑ to use a fraught expression ‑ to seek a declaration as to the construction of the contract as between vendor and purchaser, would it?

MR McELWAINE:   We say a valuer in that circumstance would if the valuer said I do not understand what this contract means, please declare its meaning so that I may undertake the calculation correctly.

STEWARD J:   One of the things one has to bear in mind with this clause ‑ and it may or may not be important at the end of the day ‑ but this clause was drafted on the assumption that the owner of the airport would be a wholly owned subsidiary of the Commonwealth Government and that it is addressing relations between different levels of government and it is only after a change of government that they decided to sell the various companies.

MR McELWAINE:   Yes, although the Airports (Transitional) Act was put in place to specifically allow non‑government entities to be the operators.

STEWARD J:   That is exactly right.  That is why I personally have found this entire clause peculiar, if I may say so.

MR McELWAINE:   The Councils find it difficult and that is why the Councils came to this Court – sorry, came to the Federal Court and said, difficulty has arisen, our interest is not mere outsiders ‑ to use the phrase of Justice Nettle in CGU ‑ because that begs the question who is an outsider, but we are a participant in a calculation process and we would like to have this Court resolve how that calculation is to be undertaken.  For that reason, the broad framing of the first special leave question does not arise on the particular circumstances of these cases and these cases are not suitable vehicles to determine the first special leave question at ab 173. 

STEWARD J:   If you leave aside the issue of appropriate vehicle, do you accept that the issue raised is one of importance and is, at the very least, at least interesting?

MR McELWAINE:   Quite so and quite so, your Honour.

STEWARD J:   Thank you.

MR McELWAINE:   We have to approach this case at the level of suitable vehicle and particular factual circumstances on the privity question.  On the other questions, in our submission, the law is plain, there can be a justiciable controversy even though there is not reciprocity of rights, obligations and liabilities as between applicant and respondent.

KEANE J:   But it is not just this case, is it?  Given your answer earlier that any valuer valuing a price and a contract might seek declaratory guidance from the court, it obviously is relevant to a range of transactions?

MR McELWAINE:   Quite so, your Honour, but that is what we say is the distinguishing feature that does not raise the broader question as framed by the applicants.  One can think of many examples, architects and supervising engineers under building and engineering contracts have functions to perform but they are not parties.  But if our friends are right, they have to perform that function without the guidance from a court as to how it is to be correctly undertaken.

KEANE J:   I think your friends would say to that, that any guidance they need would be provided by a decision of the court in a contest between builder and owner.

MR McELWAINE:   That would be so.  But, here, the parties are in heated agreement as to what they subjectively say the contract means.  But, of course, in contract law, that must be irrelevant – the contract can only have one meaning as between the contracting parties and third parties, banks, mortgagees, and so forth, the meaning does not change.  What the Council sought to do is, please settle the legal meaning of this particular provision.

As to the other points, your Honours, the special leave question 2 seeks to contend that there can be no justiciable controversy where the contracting parties are not in dispute.  Our answer to that, your Honours will have seen from our submissions, is that it is contrary to the settled position in this Court that there does not need to be reciprocity of interests for there to be a justiciable controversy and Truth about Motorways is a strong authority for that proposition.  So, question 2 does not involve sufficient prospects of success to warrant a grant of leave, in our submission.

Question 3 is very closely related to question 2 and focuses on matter rather than justiciable controversy.  In our submission, there is clearly a justiciable controversy and, therefore, for that reason, a matter in this case and, for that reason, question 3 has insufficient prospects of success to warrant a grant of leave.

Question 4 focuses upon having standing merely on account of the fact that one might engage in subsequent negotiations.  That, with respect, mischaracterises what the Full Court did in this case.  That was one factor the Full Court took into account but took into account each of the other factors from ab 136, paragraph 147 to ab 138, paragraph 153, a large

number of factors in order to determine whether the Councils were truly outsiders.  But the Full Court did not gainsay that an absence of privity gives rise to a real question about whether the applicant has a sufficient interest and whether there is the requisite controversy.

So, the fourth special leave question narrowly focuses on a single paragraph and ignores the entirety of the balance reasoning of the Full Court and has insufficient prospects of success for that reason.  So, it really does come down to question 1, in our submissions, and I cannot put our case higher than I have put it.  Unless there is anything further, that is what I wish to say.

KEANE J:   Thanks, Mr McElwaine.  Yes, Mr Lenehan.

MR LENEHAN:   Your Honours, I can feel the way the wind is blowing, but can I say this.  Your Honours know that the two essential issues that arose below were really whether the Councils had standing to seek the relief they sought and whether there was a relevant matter.  The correct approach to those issues is exactly the one that the Full Federal Court took, it required attention to the two matters that the Full Court identifies at ab 130, paragraphs 130 and 131, that is, the existence and quality of the controversy giving rise to the relevant claim to relief, and the quality of the Council’s interest in the declaratory relief sought. 

Now, the fact that the Councils were not parties to the lease is no doubt relevant to the second matter, but it is wrong, we say, to elevate the privity doctrine to some sort of anterior inquiry, which is really what our friends seek to say.  Can I also accept your Honour Justice Steward’s point about windfall gain.  That may be true, but the parties have adopted a particular form of contract, it is that contract and its terms which our friends assert give them a sufficient interest.  Those things are really essentially factual inquiries, we say, depending on the facts of the case.  There is not really the large point of principle that our friends assert.

Now, the other point that seems to be looming in the background is the notion that there is some large difference between an approach to the question of sufficient interest in a public law context and a private law context.  We say that is wrong.  You can see that, for example, in Justice Nettle’s reasons in CGU at paragraph 99 where he cites, in talking about the interest sufficient for declaratory relief, some very familiar public law authorities.

Now, can I adopt everything that our friend for the Councils has said regarding the way in which the court approached the notion of controversy and the way in which it approached sufficiency of interest.  What that then leads to, we say, is this; the question of privity which the applicants put at the forefront of their case in fact belongs at the rear.  And, if that is so, then the interesting questions that Ms Stern seeks to have your Honours take up really go nowhere for the reasons that are given at the Full Court at paragraph 129, page 129 of the book.  So, the Court there says, referring to Meagher, Gummow and Lehane, that the:

absence of privity supports an inference that the applicant has no real or sufficient interest to seek a declaration. 

And that is something that the Full Court plainly accepted.  But as that formulation makes plain, that is not a rigid absolute rule, and nor, would we say, is it a rule that has a narrow focus with only limited exceptions. 

STEWARD J:   Mr Lenehan, do you accept Ms Stern’s contention that a declaration can have coercive force?

MR LENEHAN:   No – well, not in the way that she puts it. 

STEWARD J:   So, does that mean that decisions such as EB9 are wrongly decided. 

MR LENEHAN:   Yes.  EB9, your Honour, as we read it, does not support the propositions that Ms Stern seeks to gain from it.  Indeed, if your Honours look at paragraph 35 of Justice Barrett’s reasons, you will see that it is all premised on the observation, and our friends for the Councils make this same point:

A plaintiff who has obtained a binding declaration of right cannot resort to any form of execution of the declaration.

What his Honour’s discussion of liberty to apply ‑ rather, the availability of liberty to apply ‑ concerns is an explanation of why the Court is not functus, in that category of case.  But what ‑ ‑ ‑ 

STEWARD J:   That may be so, that is probably the correct principle, but it nonetheless may mean that a declaration can have a coercive effect on parties.

MR LENEHAN:   Your Honour, can I add this further proposition?

STEWARD J:   As a means of enforcement?

MR LENEHAN:   As a means of enforcement, if the party has the relevant right, because, of course, what that sort of order has in mind is further relief in vindication, or to enforce the rights that were declared to exist in the declaration.

STEWARD J:   This sounds like potentially another interesting issue.

MR LENEHAN:   Your Honour, I have to accept that, but I may be getting myself into hot water.  But can I say that, at least my submission is that that area is relatively clear.  If I am right in that proposition, that is, that all of that depends on the party seeking liberty having the relevant right in the first place, then, of course, questions of privity may well loom very large indeed at that stage, and there is no particular novelty in the notion that a person may be confined to purely declaratory relief.  An example from public law is the case of M61, and we would say Aussie Airlines had this approach been pursued there, would have supplied another example in a private law context.  So, for that reason, we say that EB does not get Ms Stern to the position that she needs to be.

But ‑ and this is the point that I think I started with, your Honours ‑ the more fundamental difficulty is really this.  The reasoning of the primary judge, with respect, was in error, because the focus on privity obscured the real inquiry.  The real inquiry has the two limbs that I identified at the start:  the sufficiency of interest, and whether there is a relevant controversy.  And no matter where one gets to, in terms of the particular issues that Ms Stern takes with the reasoning of the Full Court, which was to seek to reconcile those, the doctrine of privity on the one hand and the orthodox approach one takes to the availability of declaratory relief on the other hand, those specific criticisms do not get it to the point that she needs to get to.

All of that does not, I should also say, involve some sort of jettisoning in all circumstances of the doctrine of privity, or the undermining of contractual freedom, and that was in fact the point made by the Full Court at paragraph 144, ab 135.  And what their Honours say there, that it is really through the second – we say unimpeachably undertaken – inquiry by the Full Court, sufficiency of interest, which is the limiting factor, which means that what Ms Stern says about the large potential for privity to be undermined is not so.

One comes back to the point made by the learned authors of Meagher, Gummow and Lehane.  And the inference that arises from a lack of privity is that a person does not have a sufficiently affected interest.  But that is only the starting point and then one gets into the further factual inquiry that the Full Court undertook in this case, and for all of those reasons we say there is no error disclosed in its reasoning, and your Honours would refuse leave on that basis.  Unless your Honours have any further questions, those are the submissions that the second respondent seeks to make.

KEANE J:   Thanks, Mr Lenehan.  The Court need not trouble you further, Ms Stern.  There will be grants of special leave in each of these matters.  Ms Stern, how long will the hearing take?

MS STERN:   Your Honours, I would anticipate a day to a day and a half – a day.  Everyone else to my right is saying a day, so perhaps I will say a day.

KEANE J:   That sounds pretty right.  Any different view on the other side of the Bar table?

MR McELWAINE:   No, your Honour.

KEANE J:   Thank you.  Very well, then, special leave is granted, and the parties should follow the directions of the Registrar in relation to progressing the matter towards a hearing.  Before we call the next matter, I think we need to adjourn briefly, to enable the link with Sydney to be established, so the Court will adjourn briefly.

AT 11.43 AM THE MATTER WAS CONCLUDED