BY MICHAEL DOUGLAS

‘The first duty of any Court, in approaching a cause before it, is to consider its jurisdiction’.

So said Isaacs ACJ in Hazeldell Ltd v Commonwealth (1924) 34 CLR 442, 446. With reference to that orthodoxy, Justice Mark Leeming has cogently argued that it is wrong for a court to assume that it has subject-matter jurisdiction, in a case in which that issue is difficult, even simply to dismiss a case without merit: see Authority to Decide 40–1; cf arguments by Brendan Lim: (2012) 86 ALJ 616; (2013) 87 ALJ 680. Justice Leeming’s position is in contradistinction to the position in the United States, where courts have historically assumed so-called ‘hypothetical jurisdiction’ in certain circumstances; see Bray v F Hoffmann-La Roche Ltd (2003) 130 FCR 317, [240].

Justice Leeming’s view is consistent with High Court authority that the exercise of judicial power within our constitutional framework depends on the existence of a justiciable controversy—that is, a ‘matter’; see CGU Insurance Ltd v Blakeley (2016) 259 CLR 339, [24] ff (French CJ, Kiefel, Bell and Keane JJ). The concept of a ‘matter’ is thus inextricably intertwined with the question of whether a court has jurisdiction, or authority to decide, in a particular case: see Rizeq v Western Australia (2017) 262 CLR 1, [8] (Kiefel CJ), [55] (Bell, Gageler, Keane, Nettle and Gordon JJ).

As a creature of statute, the Federal Court’s subject-matter jurisdiction depends on there being a ‘matter’ within the meaning of s 76 of the Constitution (such jurisdiction being conferred pursuant to federal laws, including s 19(1) of the Federal Court of Australia Act 1976 (Cth), made under ss 71 and 77 of the Constitution). In In re Judiciary and Navigation Acts (1921) 29 CLR 257, 265, the High Court explained that ‘there can be no matter within the meaning of [s 76] unless there is some immediate right, duty or liability to be established by the determination of the Court’. The Federal Court lacks hypothetical jurisdiction because in such a case there is no real right, duty or liability to be established by the Court’s adjudication. The Court does not have jurisdiction to give advisory opinions.

These issues were recently ventilated by an interesting case before the Full Court of the Federal Court: Clarence City Council v Commonwealth of Australia [2020] FCAFC 134.

A case about airport leases

The case concerned appeals by two Tasmanian councils from decisions which determined that the councils lacked standing to seek declarations with respect to the interpretation and application of contracts to which they were not party (see [2019] FCA 1568).

The unusual circumstances precipitating the case include the history of privatisation of airports in Australia. Beginning in the 1990s, the Howard Government accrued $61 billion from divestment of public assets, which included most of Australia’s main airports.

The divestment of airports was achieved through long-term leases, creating a potential competitive imbalance. Certain private airports would be subject to council rates or state land taxes, but those airports leased from the Commonwealth were not by virtue of s 114 of the Constitution:

A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

Eager to preserve the competitive neutrality once agreed by the Council of Australian Governments, the Commonwealth ensured that the leases of the Tasmanian airports (which were the subject of this case) included a provision that required lessees to make ex gratia payments in lieu of rates and land tax to the relevant ‘Governmental Authority’; ie, to the councils.

The provision required the lessee to use all reasonable endeavours to enter into an agreement with that relevant Governmental Authority to make such payments, and required the ex gratia payments to be made on an annual basis.

For a time, one of the appellants—Clarence City Council—contracted with the lessee of Hobart Airport for the ex gratia payments contemplated by the relevant lease. The agreement expired in 2009 after a five-year term and was not renewed. Otherwise, the Tasmanian councils party to this case (‘the councils’) were not parties to contracts with the relevant lessees. The lessees did, however, continue to make ex gratia payments to the councils in accordance with annual independent valuations.

The payments ceased in 2014 when a dispute arose following a valuation of the relevant airports by the Valuer-General for Tasmania. The councils contended that the quantum of the ex gratia payments should increase. A tripartite dispute arose between the councils, the lessees and the Commonwealth. The Commonwealth sought to resolve it by engaging an independent valuer, after which the Commonwealth and the lessees agreed that the quantum of ex gratia payments payable to the councils in accordance with the leases was a lesser sum than that which the councils contended was payable.

The councils were not happy with the construction and application of contracts to which they were not parties—the leases—but pursuant to which they would be owed the ex gratia payments. They commenced proceedings in the Federal Court seeking declarations regarding the proper construction of the leases and their entitlement to receive payments pursuant to the leases.

Matter, jurisdiction, power, standing, and privity

The primary Judge dismissed the matter by reference to the privity doctrine explained by Deane J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, holding that the councils lacked standing to seek declaratory relief with respect to contracts to which they were not parties.

On appeal to the Full Court, the councils contended (with the support of the Commonwealth) that they had standing to seek declaratory relief, and that there was a matter for the Court’s determination. They appealed to the following (see [47]):

first, the real commercial and practical interest of the Councils in obtaining the declaratory relief sought and, second, the existence of a justiciable controversy in respect of the meaning of the leases between the Councils on one hand and the Commonwealth and the Lessees on the other hand.

They further contended that the matter was in federal jurisdiction as it revolved around the leases, which owed their existence to federal laws (including the Airports Act 1996 (Cth)), thus engaging s 39B(1A)(c) of the Judiciary Act 1903 (Cth), which the Court accepted (see [169]).

The Full Court’s unanimous judgment (per Jagot, Kerr and Anderson JJ) included a helpful overview of the conceptual framework, including principles of federal jurisdiction (at [49] ff). Key aspects of that framework are summarised here.

Recounting cases like CGU, the Court explained that a ‘matter’ has a subject-matter element and a justiciability element: [52]–[54]. While ‘subject matter’ requires, for the Federal Court’s original jurisdiction under s 39B(1A)(c), a relevant engagement of a ‘federal law’, ‘justiciability’ requires a controversy independently identifiable from the proceedings which are brought for the controversy’s determination: Fencott v Muller (1983) 152 CLR 507, 603.

While the Court’s jurisdiction was in issue in this case, so was its power. The High Court has repeatedly emphasised the distinction between these concepts; see, eg, CGU, [25], [31]. Roughly speaking, while ‘power’ denotes what a court can do, ‘jurisdiction’, an anterior issue, is a court’s authority to decide and thus exercise its powers.

The Federal Court would have the implied or incidental power to issue a declaration, in a matter in which it has jurisdiction, as such power would be necessarily inherent in the nature of judicial power conferred on the Court by statute: Jackson v Sterling Industries Ltd (1987) 162 CLR 612; DJL v Central Authority (2000) 201 CLR 226, [25]; Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644, [53]. Yet the Court has no need to resort to implication, in that the express terms of s 21 of the Federal Court of Australia Act 1976 (Cth) confer the power to issue declarations:

Declarations of right

(1)  The Court may, in civil proceedings in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed.

(2)  A suit is not open to objection on the ground that a declaratory order only is sought.

Related to the question of the Court’s jurisdiction over the matter was whether the councils had standing to seek the exercise of the Court’s declaratory power in this case; see [67] ff. The Court explained that ‘there is a strong interrelationship between the jurisdictional question as to the existence of a “matter” and the existence of standing to seek declaratory relief’: [72]. The distinction between these concepts is difficult to apply. The existence of a matter is (arguably) insufficient to answer whether a particular party has standing: Kuczborski v Queensland (2014) 254 CLR 51, [5] (French CJ).

Application of these concepts

For the primary Judge, the councils’ lack of standing was a consequence of the application of the privity doctrine. Broadly stated, the Full Court took a somewhat narrow interpretation of the doctrine, construing the councils’ endeavours to obtain declarations about the leases as not suing ‘on’ or ‘upon’ the leases—or as not ‘enforcing’ the leases: [83]–[91]. Privity does not preclude a third party from commencing proceedings in relation to, or in connection with, the contract: [89]. The Full Court thus held that the primary Judge had erred in applying the doctrine of privity to deny the possibility of the councils having standing: [92]–[93].

The Court went on to summarise authorities concerning when third parties to a contract would be entitled to seek declaratory relief in relation to a contract to which they were not party: [95]–[127]. They reconciled somewhat conflicting principles in stating that, where a claim for declaratory relief is involved, the ‘proper focus’ is ‘on the court’s jurisdiction and power in respect of such relief, as well as the applicant’s standing to seek the relief’: [130]. They thus considered (see [131] ff): ‘(1) the existence and quality of the controversy regarding the relevant claim to relief and (2) the quality of the applicant’s interest in the declaratory relief sought’.

An impediment to the council’s position with respect to the ‘existence and quality of the controversy’ was the absence of a controversy between the Commonwealth and the lessees. The Court followed Employers Reinsurance Corporation v Ashmere Cove Pty Ltd (2008) 166 FCR 398, [49]–[50] in holding that a controversy between the contracting parties was not required: [138]. As the Full Court opined in the Ashmere case, ‘the word “matter” is a term of wide connotation’.

Still, the question remained whether there was some right, duty or liability to be established to satiate the justiciability aspect of ‘matter’ flowing from cases like Re Judiciary and Navigation Acts, above, and Abebe v Commonwealth (1999) 197 CLR 510, [31]–[32]. According to the Full Court, there was. They explained that what is ‘necessary for the crystallisation of a “matter” is that the rights, duties or liabilities that are the subject of the claims made in the controversy must be capable of enforcement’: [140]. The rights, duties and liabilities of the contracting parties were in issue in these proceedings even though those contracting parties were not in a dispute with one another. This was ‘sufficient to found the existence of a “matter” in the present case’: [142].

But only an applicant with a ‘real’ interest in the relief sought would have standing to seek a declaration in a matter that would otherwise be justiciable: Plaintiff M61/2010E v Commonwealth (2010) 243 CLR 319, [103]. While contracting parties would have a real interest in their contract, an applicant who is not a contracting party may have the requisite interest even where they lack an enforceable legal right or liability under the contract equivalent to that of a contracting party; see [147]. A third party may possess a sufficient interest ‘where the award of the relief would substantially aid the party in the course of future legal or commercial negotiations’: [149]. A close connection between the third party and the subject matter of the contract may be enough. Thus, ‘where the contract in question refers to, contemplates, or is dependent on, the participation of a third party, this will naturally inform the quality or character of the interest held by the third party as to the interpretation and application of that contract’: [152].

The Court dismissed various arguments levelled by the lessees for the proposition that the ‘subject matter’ aspect of the matter issue was not satisfied: [154] ff. Given the councils’ identification as ‘Governmental Authorities’ in the leases, and the contracting parties’ contemplation that the councils would be paid under the leases, the councils were characterised as ‘invitees, not invaders, to the contractual relationship’: [178]. The councils had a ‘real’ commercial and practical interest in the declaratory relief they were seeking, sufficient to found their standing to seek that relief.

The Court summarised (at [191]):

We conclude that a “matter” exists before the Court in respect of both proceedings, and the Councils correspondingly have standing to seek the declaratory relief sought in respect of the interpretation and application of the leases.  In summary, this is because, first, a justiciable controversy exists between, on one hand, the Councils and, on the other hand, the Commonwealth and the Lessees and, second, the Councils have a requisite interest in the declaratory relief sought, which, if granted, would be of real commercial and practical importance to them.  On these bases, both the justiciability and subject matter elements of a “matter” are satisfied.  Finally, as the leases owe their existence to federal law, the “matter” is one arising under laws made by the Commonwealth Parliament, and therefore is within the scope of this Court’s jurisdiction to determine.

Conclusion

Clarence City Council v Commonwealth of Australia is another reminder of the breadth of the ‘matter’ concept at the heart of Australian courts’ authority to decide. While abstract or hypothetical questions cannot found a ‘matter’, a third party to a contract can seek a declaration with respect to that contract and in doing so pose questions that are not merely abstract or hypothetical—even where the contracting parties themselves are comfortable with their construction of the contract.

It is notable that the question of jurisdiction considered by the Full Court was very difficult, and the Court did not even consider whether the declaration ought to be granted (the issue was remitted). Although the trial Judge considered extensive evidence on valuation of the airports, the reasons themselves focus on the anterior question of standing. With respect—and with the benefit of hindsight—the overriding purpose may have been served by the Court determining the related issues of jurisdiction and standing in the first instance, for the taking of evidence was presupposed by the authority to adjudicate issues of fact and the standing of the councils to seek the remedies sought. In any event, the reasons of the primary Judge and of the Full Court each focus on jurisdictional issues, which was quite appropriate, and reflective of their ‘first duty’.

Michael Douglas is a Senior Lecturer at the University of Western Australia and a Consultant at Bennett + Co, Perth.

Suggested citation: Michael Douglas, ‘What are the limits of hypothetical (federal) jurisdiction?’ on AUSPUBLAW (18 November 2020) <https://auspublaw.org/2020/11/what-are-the-limits-of-hypothetical-federal-jurisdiction>