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.