Coronavirus Australia: Chinese firm in legal row over Lizard Island resort shutdown

Lizard Island’s operator faces punishing financial damages unless it reopens immediately.

Snorkelers with a green turtle at Casuarina Beach on Lizard Island, Queensland Picture: AAP

A Hong Kong-based Chinese company is threatening to move on the operator of one of Australia’s most famous five-star resorts after it closed down to comply with COVID-19 restrictions.

The operator, Delaware North, is accused of breaking a $2m-a-year sublease to run the luxury getaway on north Queensland’s Lizard Island and faces punishing financial damages unless the ­resort is immediately reopened.

The “flabbergasting” demands are spelled out in a lawyer’s letter from the island’s primary leaseholder, Hong Kong’s SEA Holdings group, which insists the Great Barrier Reef retreat should have stayed open in defiance of the ­infection risk and travel bans.

Having shut down the resort six weeks ago, Delaware North has now been told by SEA Holdings it is in breach of contract and could potentially lose its sublease if the resort does not reopen. This is an impossible request when Aus­tralia’s international borders are sealed, and Queensland has banned travel from interstate and overnight holiday stays.

As well, the northern section of Cape York Peninsula has been declared a biosecurity zone to protect the vulnerable indigenous population — making for few if any takers for the $2000 to $5000-a-night rates that come with Lizard Island’s status as a playground for the rich and famous.

The Queensland government is examining the terms of SEA Holdings’s lucrative 1997 lease on the scenic, coral-ringed island 240km northeast of Cairns to rein in the company.

Tourism Minister Kate Jones told The Australian: “I am calling on the primary leaseholder to do the right thing and show some consideration during this tough time. It’s … un-Australian not to provide some support right now.”

The international property conglomerate controlled by Hong Kong-Chinese business identity Lu Wing-chi and son Lambert Lu is adamant the resort must reopen “without delay”.

In an April 23 ultimatum to Delaware North’s solicitor, the company’s Brisbane law firm, Clifford Chance, said: “Given that your client has breached clause 4.5 of the sublease by closing the Lizard Island resort without our client’s consent, it is also required … to indemnify our client against all actions, claims, demands, losses, damages, costs and expenses which the lessor may sustain or for which the lessor may be or become liable.

“This includes, amongst other things, losses suffered by our client under its loan facility as a consequence of your client’s breach of the sublease and the legal fees it has incurred as a consequence of your client’s actions.

“Our client’s rights in this regard are fully reserved … Our client does not consent to your client’s closure of the Lizard Island resort. Please confirm that your client will reopen the Lizard Island resort without delay and that it will comply with its obligations under the sublease in full, including payment of rent.” Neither Delaware North Australia managing director Gary Brown nor its Brisbane lawyer, Jonathan Whybird, would comment.

SEA Holdings said it had initially responded in “good faith” by agreeing to the resort’s closure but this was rejected by Delaware North in a series of exchanges that culminated in the April 23 letter. “We have repeatedly urged Delaware North to follow the operating guidelines from relevant departments as well as considering safety measures implemented by other operating resorts/hotels,” a spokesman said by email.

Brisbane businessman Steve Wilson, who has a separate sublease to build a $20m residence that will be managed by the resort, described as “flabbergasting” the assertion that Delaware North had breached its lease conditions by ceasing operation.

“I am not aware of all the tos and fros that have gone on between SEA and Delaware, but I do know there is a threat to close the resort and that would fly in the face of everything that is going on in the world at the moment, and it would fly in the face of any Team Australia ambition,” he said.

“I just can’t understand why you would want to do that.

“You should be pulling together to help tenants to succeed and grow their market, not talking about terminating.”

Lizard Island is an internationally renowned playground for the rich and famous. Picture: Tourism and Events Queensland/Phlip Vids

Lizard Island has certainly proved to be a handy earner for the Hong Kong lessee.

SEA Holdings secured the rights from the Queensland government 23 years ago for $16m but charges Delaware North annual rent of more than $2m to operate the five-star resort.

The US-based hospitality services provider has a growing footprint in Australia, counting the King’s Canyon resort in the Northern Territory as well as concessions at Melbourne and Olympic Park and the Sydney Cricket Ground in its expanding portfolio.

The dispute with SEA Holdings erupted after the resort closed on March 29 with a notional reopening date in June. Delaware North sought rent relief, in line with the mandatory code of conduct put in place by Scott Morrison to cover commercial leasing during the COVID-19 period. The operator cited safety and environmental requirements in shuttering the Lizard Island facility – rebuilt after Cyclone Yasi razed the site in 2011, at a cost of $45m.

SEA Holdings’s lawyers pushed back, arguing there were no “lawful directives” requiring resorts or hotels to cease trading. Disputing this, Ms Jones said on Thursday travel restrictions and other anti-COVID measures effectively cost Lizard Island its well-heeled customer base.

In the 23 April letter, Clifford Chance lawyers rejected Delaware North’s assertion that social-distancing requirements had made it impossible to fly guests to the resort by seaplane. Pointing to taxi and rideshare services, the law firm said the Queensland government allowed them to operate with one passenger or a group from the same household seated in the back seat with access to hand sanitiser.

“In the circumstances there is nothing to preclude your clients from relying on this guideline when providing seaplane services to patrons of Lizard Island resort,” its letter said. “We are also instructed that seaplanes are not the only practical way to the resort and it is still possible to access the resort by vessel.”

The law firm insisted there had been no requirement to close the operation under Queensland work health and safety law, as cited by Delaware North.

Expressing its “disappointment” with Delaware North, SEA Holdings said it had been a long-term investor in Australia and promoter of Queensland Tourism; its relationship with the previous resort operator, GPT Group, had been “perfect”.