Where Councils not parties to leases, do Councils have standing to have dispute determined?

Hobart International Airport Pty Ltd v Clarence City Council; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council [2022] HCA 5 (9 March 2022)

Intro:-

This is an appeal from the Federal Court of Australia

Facts:-

The Hobart Airport site and the Launceston Airport site ("the Airports") are on Commonwealth land. They are not amenable to council rates or State land tax because s 114 of the Constitution prohibits States (without the consent of the Commonwealth Parliament) from imposing "any tax on property of any kind belonging to the Commonwealth".

The Clarence City Council administers the municipal area covering the eastern suburbs of Hobart and surrounding localities, including the Hobart Airport site. The Northern Midlands Council administers the municipal area extending from the south of Launceston to the Tasmanian central midlands, including the Launceston Airport site.

During the late 1990s and early 2000s, the Commonwealth entered into a number of long-term leases with airport operators as part of a project to privatise Australia's federal airports ("the privatisation project"). Legislation to facilitate the privatisation project was enacted. The Airports Act 1996 (Cth) "establish[ed] the regulatory arrangements to apply to the airports [then] owned and operated on behalf of the Commonwealth by the [FAC] ... following the leasing of those airports". The Airports (Transitional) Act 1996 (Cth) ("the Transitional Act") established "a framework [to give] effect to the Government's decision to lease all the Federal airports effectively as ongoing businesses with staff and management in place". The simplified outline of the Transitional Act provided:-

● This Act provides for the leasing of certain airports.

● Airport land and other airport assets will be transferred from the [FAC] to the Commonwealth.

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

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

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

At the time of the privatisation project, the Commonwealth sought to create a "level playing field" between the operators of newly privatised airports and their actual or potential competitors. The Commonwealth recognised that a competitive imbalance arose 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. Consistently with the Commonwealth's long-standing policy of making payments equivalent to rates in respect of federal airports, and in order to implement the principle of competitive neutrality agreed to in the CPA, the Commonwealth included in federal airport leases a term requiring lessees to pay to the relevant council a "fictional" or "notional" equivalent to the rates that would have been payable if the airport sites were not on Commonwealth land.

These appeals are concerned with the following leases ("the Leases") granted by the Commonwealth pursuant to s 22 of the Transitional Act:

(1) a lease between the Commonwealth and Hobart International Airport Pty Ltd ("HIAPL") (the operator of the Hobart Airport) for the Hobart Airport site dated 10 June 1998, which commenced on 11 June 1998, for a term of 50 years, with a 49‑year option to renew; and

(2) a lease between the Commonwealth and Australia Pacific Airports (Launceston) Pty Ltd ("APAL") (the operator of the Launceston Airport) for the Launceston Airport site dated 28 May 1998, which commenced on 29 May 1998, also for a term of 50 years, with a 49‑year option to renew.

The Leases contain materially similar terms. The dispute giving rise to these appeals concerns cl 26, headed "Rates and Land Tax and Taxes". Clause 26.1 provides that "[t]he Lessee must pay, on or before the due date, all Rates, Land Tax and Taxes without contribution from the Lessor". Clause 26.2, headed "Ex Gratia Payment in Lieu of Rates and Land Tax", creates a mechanism whereby, if council rates and taxes are not payable by HIAPL and APAL ("the Lessees") because the Airports are situated on land owned by the Commonwealth, the Lessees must pay certain amounts to the relevant "Governmental Authority" or the Commonwealth, as the case may be.

Most relevantly for present purposes, cl 26.2(a) provides:-

"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." (emphasis added)

The Clarence City Council and the Northern Midlands Council ("the Councils"), established under the Local Government Act 1993 (Tas)[19], are respectively the relevant "Governmental Authority" for the Hobart Airport and the Launceston Airport. The Councils are not, and have never been, parties to the Leases.

Between 1998 and 2013, there was no issue about the operation of cl 26.2(a). The Lessees made payments to the Councils in accordance with independent valuations of the Airports in each financial year. In the 2014 financial year, the Valuer-General for Tasmania ("the Valuer‑General") undertook a re‑valuation of the Airports. The outcome was a significant increase in the quantum of the equivalent amount payable by the Lessees to the Councils under cl 26.2(a) of the Leases. The Lessees objected to the valuation on the bases that the Valuer-General incorrectly identified the portions of the Airports on which trading or financial operations were undertaken to be included for calculating the amount payable under cl 26.2(a) (for example, by including common user areas of the Airports, such as the check-in areas and departure lounges) and that the wrong methodology had been applied.

Protracted correspondence and meetings subsequently ensued between the Lessees, the Councils and the Commonwealth in an effort to resolve the disagreement. The Commonwealth engaged an independent valuer, Herron Todd White ("HTW"). In 2016, HTW provided a valuation report, which the Commonwealth considered accurately reflected the Lessees' obligations under cl 26.2(a). The Commonwealth told HIAPL that, because it had made payments to the Clarence City Council exceeding the amounts determined in the valuation report, it considered HIAPL had met its obligations under cl 26.2(a) for the years addressed by the valuation (namely, the 2014, 2015 and 2016 financial years). The Commonwealth told APAL that if it made payments to the Northern Midlands Council in line with the valuation report, it would consider APAL to have met its obligations under cl 26.2(a) for the 2014, 2015 and 2016 financial years, and APAL subsequently made payments accordingly.

In 2017, HTW provided a revised valuation report. HTW did not apply a value to the common user areas in the revised valuation. The Commonwealth informed the Lessees that "[g]oing forward", absent any formal agreement between the Councils and the Lessees, it would consider the Lessees compliant with their obligations under cl 26.2(a) if they made "payments in lieu of rates to [the Councils] on the basis of a valuation and methodology consistent with" the revised HTW valuation. The Commonwealth encouraged the Lessees to enter into negotiations with the Councils, "with a view to reaching mutually agreed arrangements around the payment of ex‑gratia rates for future years". Subsequently, for the purposes of cl 26.2(a), the Lessees paid the Councils on the basis of the valuations and methodology set out in HTW's revised valuation for the 2017 and 2018 financial years.

There was therefore no dispute between the parties to the Leases – the Commonwealth and the Lessees – about the operation of cl 26.2(a) or the Lessees' compliance with it. The Lessees and the Councils have not relevantly entered into any agreements about ex-gratia payments as contemplated by the final sentence of cl 26.2(a)[20].

The Councils, however, contended that the Valuer‑General had correctly identified the portions of each Airport on which trading or financial operations were undertaken in calculating the equivalent quantum under cl 26.2(a) and applied the correct methodology. The Councils, therefore, did not accept that the Lessees' payments to them of amounts calculated in accordance with HTW's valuations (and not the higher amounts based on the Valuer-General's valuation) satisfied the Lessees' obligations under cl 26.2(a).

The Councils then commenced proceedings in the Federal Court of Australia against the Commonwealth and the Lessees seeking, among other things, declaratory relief pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) with respect to the proper construction of cl 26.2(a) of the Leases and the Lessees' obligations to make payments pursuant to the Leases for the financial years for 2014/2015 to 2017/2018 inclusive.

Decisions below

The primary judge dismissed the Councils' applications on the basis that the Councils lacked standing to obtain the declaratory relief sought.

The Councils appealed to a Full Court of the Federal Court (Jagot, Kerr and Anderson JJ) on various grounds essentially directed to arguing that the Councils had standing to seek the declaratory relief in respect of the interpretation and application of the Leases. The Commonwealth's position was not materially different to that adopted by the Councils.

The Lessees contended that the primary judge correctly found that the Councils did not have standing. They also filed notices of contention arguing, in the alternative, that the primary judge's decision should be affirmed on three grounds: (1) the Councils' claims did not involve a justiciable controversy so as to constitute a "matter" for the purposes of Ch III of the Constitution in respect of which the Federal Court had jurisdiction; (2) the Federal Court did not have original jurisdiction as any "matter" did not arise under any law made by the Commonwealth Parliament within the meaning of s 39B(1A)(c) of the Judiciary Act 1903 (Cth); or (3) the Federal Court should decline to exercise its discretion to grant the relief sought by the Councils. The Full Court unanimously allowed the Councils' appeals, dismissed the Lessees' notices of contention and remitted the proceedings to the primary judge to determine whether the Councils should be granted the declaratory relief sought.

By grant of special leave, the Lessees appealed to this Court. Each of the Lessees contended that the proceeding to which it is a party does not involve a "matter" for the purposes of Ch III of the Constitution as there is no justiciable controversy to be quelled and the only rights, duties or liabilities to be established are the contractual rights, duties or liabilities of two contracting parties inter se between whom there is no dispute about the meaning or effect of the relevant lease. The Lessees also contended that the doctrine of privity of contract prevented the Councils from seeking declaratory relief regarding the interpretation or application of the Leases and that the Councils lacked standing.

The Councils filed notices of contention contending that if the doctrine of privity of contract ordinarily prevents a third party from seeking declaratory relief about the meaning or effect of a contract, then this case involves "exceptional circumstances" sufficient to establish standing or the Court should confine the doctrine so that it does not deny standing where the third party is a participant in respect of the contract.

Matter

"Matter" has two elements: "the subject matter itself as defined by reference to the heads of jurisdiction set out in [Ch] III [of the Constitution], and the concrete or adequate adversarial nature of the dispute sufficient to give rise to a justiciable controversy".

Subject matter

The Councils' claims for declaratory relief satisfy the first element – the subject matter requirement. The rights and obligations of the Commonwealth and the Lessees under the Leases owe their existence to a Commonwealth law, the Transitional Act, such that the claims "aris[e] under" a Commonwealth law within s 76(ii) of the Constitution.

The fact that the Commonwealth is a party to the proceedings, within s 75(iii) of the Constitution, does not provide a separate basis for satisfying the subject matter requirement. Section 39B(1A) of the Judiciary Act does not invest federal jurisdiction in the Federal Court in relation to all matters within s 75(iii), only those in which "the Commonwealth is seeking an injunction or a declaration". In these proceedings, the Commonwealth does not seek such relief. The Commonwealth's submission to the contrary is rejected.

Justiciable controversy

Central to both the notions of judicial power and "matter" within Ch III of the Constitution is the second element – the requirement that the dispute involves a "justiciable controversy". The established position remains that "there can be no matter within the meaning of [ss 75 and 76 of the Constitution] unless there is some immediate right, duty or liability to be established by the determination of the Court".

In these appeals, whether there is a justiciable controversy may be addressed by asking if the applicable principles permit the Councils to seek declaratory relief in relation to the dispute. That is, in these appeals (but not in all cases), the answer to the question of whether there is a justiciable controversy turns on whether the Councils have standing to have the dispute determined and to seek the declaratory relief sought.

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". It may be that standing to seek relief ordinarily provides the "justiciable" aspect of the controversy, but it is unnecessary to determine whether, in every case where an applicant has "standing", there is necessarily a "justiciable controversy".

It is for those reasons that the particular question in these appeals is whether the Councils have standing. What is required to establish "standing" varies depending on the relief sought. Here, the Councils seek declaratory relief. The breadth of the jurisdiction to grant declaratory relief was considered by Gibbs J in Forster v Jododex Aust Pty Ltd. The question must be real, not theoretical. There must be a proper contradictor – someone presently existing who has a true interest to oppose the declaration sought. And the applicant must have a "sufficient" or "real" interest in obtaining the relief. There is no requirement that an applicant for declaratory relief have a cause of action in order to obtain it. Those principles are not exhaustive. These appeals turn on the nature and adequacy of the Councils' interest in the resolution of the dispute.

Sufficient or real interest

The requirement that an applicant for declaratory relief have a "sufficient" or "real" interest in obtaining the relief has work to do in both public and private law contexts. "However, the requirement applies differently to different sorts of controversies".

In respect of private rights, the general principle is clear: an applicant for declaratory relief will have a "sufficient" or "real" interest in obtaining relief where it pertains to declaring the existence of legally enforceable rights or liabilities of the applicant, including statutory rights. Here, the Councils did not assert that they had any legally enforceable contractual rights under the Leases or any statutory right which they could enforce and, at least in the proceedings below, they disavowed that they enjoyed the benefit of a contractual promise held on trust.

Although lack of privity is a factor relevant to standing and a reason for a court approaching the question of the standing of an outsider with considerable caution, an outsider to a contract may, "for other reasons"[ – what might be described as "exceptional circumstances" – have a "sufficient" or "real" interest to seek declaratory relief as to the meaning and effect of a contract between contracting parties. As the Full Court put it below, "there is reason to be concerned as to the potential for what might be described as unfounded intermeddling by a third party to a contract. But, in the context of declaratory relief, the solution to that concern is not the doctrine of privity of contract".

In Edwards v Santos Ltd[42], Heydon J referred to the decision of the Full Court of the Federal Court in Aussie Airlines Pty Ltd v Australian Airlines Ltd as an example of how a person (in that case, an outsider to a contract) can have standing to obtain a declaration and how a court can have jurisdiction to grant a declaration (relevantly, in relation to the contract). In Aussie Airlines, head leases of airport facilities required the head lessee to grant a sublease to any "new entrant to the domestic aviation industry". Aussie Airlines Pty Ltd claimed to be a "new entrant to the domestic aviation industry"[. The Full Court of the Federal Court held that Aussie Airlines had standing to obtain a declaration that it was a "new entrant to the domestic aviation industry" even though it was not found to have rights under the head lease enforceable against the head lessee. The Court held that the question of whether Aussie Airlines was a "new entrant to the domestic aviation industry" was not "hypothetical"; the resolution of the question was of "real practical importance" to Aussie Airlines; Aussie Airlines had a "real commercial interest" in the relief; the head lessee was "plainly a contradictor"; and there was "obviously a real controversy".

The declaratory relief sought (as to whether Aussie Airlines was a "new entrant to the domestic aviation industry" within the meaning of head leases to which it was not a party) was "of real practical importance" to Aussie Airlines because "[i]f negotiations commence[d] and result[ed] in the grant of subleases" there would be "far-reaching ramifications for the prospective business activities of Aussie Airlines". Aussie Airlines also had "a real commercial interest in obtaining or being refused the declaration" because its future business activities depended upon it obtaining subleases and becoming a new entrant.

Similarly, the Councils have a "sufficient" and "real" interest in seeking declaratory relief about the proper construction of cl 26.2(a) of the Leases. Under cl 26.2(a), the Councils are made active participants in the process established under that clause for the making of ex‑gratia payments by the Lessees to the Councils. That process contemplates that the Councils will notify the Lessees of the amount which is "equivalent to the amount which would be payable for rates as if such rates were leviable or payable" in respect of particular parts of the Airports, with the Lessees being obliged to use "all reasonable endeavours" to enter into an agreement with the Councils "to make" those ex‑gratia payments. In that sense, and to that extent, the Councils could not be described as "outsider[s]" to the Leases[. The proper construction of the words "trading or financial operations" in cl 26.2(a) is of real practical importance to the Councils, given their contemplated role under the Leases.

The Councils also have a real commercial interest in the relief. The meaning of the words "trading or financial operations" in cl 26.2(a) will bear upon the calculations made by the Councils as to the quantum of the amount notified by the Councils. That will have direct and far‑reaching ramifications for the financial position of the Councils.

In Santos, Heydon J regarded it as significant that the plaintiffs' success in obtaining the declaratory relief sought in that case "would advance their interests in the negotiations which the parties were contractually obliged to conduct". The same is true here. If the construction of cl 26.2(a) is determined in favour of the Councils, that would advance their interests for the purposes of future negotiations contemplated and required by cl 26.2(a). The Leases still have 26 years to run, with an option to renew.

These 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. What makes this case exceptional is the combination of circumstances identified at [38]‑[40] above. Moreover, these reasons are only concerned with the Councils' claims for declaratory relief. The sufficiency of interest that might be required for a non-party to a contract to establish standing to obtain other forms of relief (for example, an injunction, damages or specific performance) does not arise in these appeals.

After the hearing, the Councils filed written submissions seeking to contend, for the first time, that they had standing to seek the declaratory relief sought because they enjoyed the benefit of a contractual promise under the Leases which was held on trust for them. As the Councils have standing to seek the declaratory relief for the reasons set out above, it is unnecessary to address that contention. The issues raised by the Councils' notices of contention also do not arise.

Contradictor

Finally, the fact that the Lessees are obliged under cl 26.2(a) of the Leases to use all reasonable endeavours to enter into an agreement with the Councils to make the ex‑gratia payments and ultimately are obliged to pay amounts to the Councils means that each Lessee is plainly a contradictor. The Lessees certainly do not wish to pay more than they are contractually bound to pay under cl 26.2(a) of the Leases – they each have a real interest in opposing the declaratory relief sought[, indeed they opposed the Councils' construction of cl 26.2(a) before the primary judge.

Conclusion:-

For those reasons, each proceeding involves a "matter". The appeals are dismissed with costs.

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