Coronavirus: Hong Kong owners queried over Lizard Island lease

The operator of Queensland’s Lizard Island resort has questioned whether its Hong Kong landlord had approval to ­acquire the lease.

Queensland’s Lizard Island resort.

The operator of Queensland’s famed Lizard Island resort has questioned whether its Hong Kong landlord had foreign investment approval to ­acquire the lease 23 years ago, ­escalating their dispute over the business’s COVID-related closure.

Delaware North told the state government it was unable to find a record of Foreign Investment ­Review Board sign-off and this could undermine the company’s security of tenure.

Queensland will seek confirmation from Canberra that all FIRB requirements were met.

The principal leaseholder, Hong Kong’s SEA Group, had warned Delaware North that it broke a tenancy agreement by shutting the resort in March to comply with coronavirus restrictions and wants the luxury reef getaway reopened immediately.

The US-based operator insists this is impossible, causing SEA Group to threaten termination of the $2m-a-year sublease and to sue for financial damages, according to Delaware North.

In a letter to Queensland Tourism Minister Kate Jones on Friday, Delaware North said the dispute had caused it to review the original 1997 head lease between the state and SEA Group, turning up nothing from the FIRB.

“Whilst we assume that SEA has complied with the FIRB at all times, we are unable to find a ­record of FIRB approval being ­issued,” the company’s Brisbane lawyer, Jonathan Whybird, wrote.

“We note this is not unusual, as such approvals are not usually made public. However, to ensure our client’s tenure is properly granted, we would be grateful if the State of Queensland could confirm (or make enquires of FIRB who can confirm) … that SEA ­obtained FIRB approval for the Lizard Island head lease and, if so, on what date that approval was granted.”

A spokesman for federal Treasury, which overseas the FIRB, told The Australian it did not comment on the application of foreign investment screening arrangements. Neither SEA Group nor Delaware North responded to The Australian’s request for comment.

But Ms Jones went after the Hong Kong company, saying the last thing Australia needed during the COVID-19 emergency was “greedy international corporates pushing the boundaries”.

“Frankly, we are appalled at SEA’s reported behaviour,” the minister said.

“A resort like Lizard Island can’t operate at this time and pressuring the operator to open with the threat of legal action is not just breaching the current health ­directives, it is un-Australian.”

SEA Island Holdings, a subsidiary of the international property concern controlled by Hong Kong’s wealthy Lu family, is understood to have paid $16m for the head lease before subletting the resort’s operation to Delaware North a decade ago.

On top of paying about $2m ­annual rent, Delaware North has invested heavily in the five-star property 240km north of Cairns, including a $45m rebuild after Cyclone Yasi in 2011.

Mr Whybird, of AJ and Co Lawyers, told Ms Jones he had been instructed to contact her when The Australian reported last Friday that SEA Group had contrasted its “disappointment” in Delaware North to the “perfect” relationship it had with the previous operator, GPT Group.

Describing Lizard Island as the “jewel in the crown” of Queensland tourism, he said COVID-19 travel restrictions including a ban on overnight holiday stays and the quarantine zone to protect indigenous communities on Cape York Peninsula meant there was “no way” the resort could operate legally.

“Despite these restrictions being continually pointed out to SEA through correspondence with their lawyers, SEA has continued to threaten Delaware North with legal action if they do not reopen the resort and have threatened to terminate the sublease and sue for substantial damages,” Mr Whybird wrote.

“Our client is effectively being coerced by SEA to ignore current health directives regarding COVID-19 to reopen Lizard Island resort.”

The dispute erupted after Delaware North — a hospitality service provider with interests in Australia ranging from resorts to sports grounds concessions in Melbourne and Sydney, including Melbourne Park and the Sydney Cricket Ground — sought rent ­relief from SEA Group in line with the mandatory code of conduct put in place by Scott Morrison covering commercial leasing during the health emergency.

SEA Group refused and, in an April 23 ultimatum to Delaware North, its Australian lawyers, Clifford Chance, said there were no “lawful directives” requiring ­resorts to cease trading and re­affirmed it had not consented to the Lizard Island shutdown.

Delaware was “obliged” to continue operating the resort, it said.