HCA holds outsiders can seek declaration as to meaning of contract

Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5

If you are not a party to a contract, but you are affected by its terms, can you go to court to get a declaration about what the contract means? The instinctive reaction of many commercial lawyers would be “probably not”. Outside the realm of insurance contracts, and leaving aside the special situation of contractual promises held on trust for a third party, the contract law principles of privity and consideration might be thought to mean that only parties to a contract can litigate its terms.

But in Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5; (2022) 96 ALJR 234 (HIA), the High Court held that a non-party to a contract could get a declaration as to the meaning of a term. The decision will be of interest to commercial lawyers and public lawyers alike, because it involved facts that might arise in a variety of commercial situations, and was resolved under well-known (but not always well-understood) public law principles.

Facts: Airport operators required under leases to pay council rates

State and local governments are prohibited by the Constitution from taxing Commonwealth land. Many of Australia’s major airports are on Commonwealth land. In the late ‘90s and early 2000s, the Commonwealth privatised its airports by leasing them to private operators. To ensure that the new private operators did not have an unfair advantage over other operators, the leases included terms that required the operators to pay to the local council an amount of money that was “notionally” equivalent to the council rates that would have been payable if the land were not Commonwealth land. The leases allowed the local council to notify an amount notionally payable by the operator, and included a formula for working out which parts of the airport land were taxable. The councils were not parties to the leases.

A dispute arose between the operators of Hobart Airport and Launceston Airport and their respective councils over how to calculate the taxable land area. The Commonwealth, as lessor to both airport operators, did not dispute the operators’ positions. The Councils sued in the Federal Court, seeking declarations regarding the proper interpretation of the formula in the leases: [1]–[18]. The Federal Court dismissed the claim for want of standing, but the Full Court of the Federal Court reversed this decision.

Issue: do the Councils have standing to seek a declaration regarding the rates provision in the leases?

The issue raised in the High Court was whether the Federal Court had jurisdiction to hear the claims. In constitutional terms, the issue was where there was a “matter” for the purposes of establishing federal jurisdiction. In doctrinal terms, that issue resolved into whether the Councils had “standing” to bring the claims, given that the Councils had no rights under the leases themselves.

Result: The Councils have standing

By a 5:2 majority, the High Court held that the Councils did have standing, and that the Federal Court therefore had jurisdiction to hear the claims. Chief Justice Kiefel and Justices Keane and Gordon gave one set of majority reasons (plurality judgment), and Justices Gageler and Gleeson the other (concurring judgment). Justices Edelman and Steward dissented (dissent).

In the plurality judgment, Kiefel CJ, Keane and Gordon JJ explained that what is required for a litigant to establish standing to seek a remedy depends on the remedy sought. To seek declaratory relief, a litigant must have a “real interest” in the relief, but there is no requirement that the litigant have a cause of action (such as a contract or tort claim) against the party sued. Where a litigant seeks a declaration about the meaning of a contract that the litigant is not party to, the court should exercise “considerable caution”, but, nonetheless, in “exceptional circumstances”, a non-party might have a real interest in seeking the declaration:  [31]–[35].

The plurality judgment held that the fact that the Councils were able to notify the operators as to the notional amount payable to them under the leases, combined with the Councils’ financial interest in receiving the correct payment, and the fact that the leases envisaged the operators and Councils ultimately making their own agreement, was sufficient to give the Councils a real interest in seeking a declaration: [38]–[40]. However, they cautioned that a person’s “mere commercial interest” in a contract to which they are an outsider would not necessarily be enough: ([41]).

Justices Gageler and Gleeson set out a thorough and clear explanation of the doctrines of justiciability and standing in Australian constitutional law: [45]–[68]. Public lawyers, in particular, will find a close read rewarding. Ultimately, the concurring judgment approached the issue in a similar way to the plurality, but emphasised the public interest dimension to the lease provisions. In other words, the Councils’ special interest in the provisions being correctly interpreted was “distinctive” and “substantial” because of its importance for the Councils as governments, and because the provisions reflected the Commonwealth’s competition policies: [70]–[77].

The dissent agreed generally with the majority judgments in principle, but disagreed in application, holding that the Councils failed to show any “exceptional circumstances”: [83]. However, the dissent emphasised that the requirement of standing is different depending on whether the litigant is claiming a declaration regarding a “public right” (eg, a right under statute) or a “private right” (eg, a right under a contract), and expressed the view that the majority had eroded that distinction: [82]–[99].

Takeaways

The HIA decision shows that, where a person has a strong financial or governmental interest in the operation of someone else’s contract, it might be open to the person to seek a declaration about the meaning of the contract. But, as the plurality noted, a “mere commercial interest” probably isn’t enough. It may be that this decision is only applied in contexts involving public authorities. But it could conceivably reach into a wide variety of commercial arrangements where contracts provide for payments or other benefits to flow to third parties.

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